Millions earned through banks on checking account overdraft fees

In the present day scenario, it is very obvious that the free checking accounts have disappeared and banks are now charging more by way of fees. When compared to the fees charged earlier, the banks have increased their fees or have placed a cap on the number of free transactions that are allowed, after which you would be charged.

As per the reports based on a study carried out by the Pew Charitable Trust on the 10 largest banks, the profits earned through the overdraft penalty fees at banks have risen to around $20 billion in the last decade. The aim of the organization is to make banks more accountable on their checking accounts and make banks much more transparent, fair, and responsible in keeping up with the free market principles.

This study conducted by Pew is called ‘The Hidden Risks – The Case of Safe and Transparent Checking Accounts.’ The cost of overdraft fees as well as other checking account fees and their increase has been investigated upon. During 2000, the overdraft penalty fees on the checking accounts were typically at $18.6 billion and they have risen to $38.5 billion in 2011. Hence, the overdraft fees will now equate to 5000% stated the report. According to the Pew study banks could risk losing money in checking account overdrafts, but the banks also make things complicated for customers as they don’t know the risks involved with this fee.

The Pew researchers had collected this data during October 2010. At that time of data collection, in 100% of the 250 types of checking accounts that were offered by the 10 largest banks that were part of the study, banks had the right to re-order withdrawals from the highest to the lowest amount. Hence, banks could have multiple overdraft fees on several small accounts or just clear off all the small amounts and then charge overdraft fees on just one big amount.

Added to this, 8 out of 10 banks that were part of the study, had the right to post withdrawals before the deposits and thereby increase the occurrence of overdraft fees.

But Pew stated that many lenders had in fact, changed these practices but there were banks that still used these tactics. As per the study, the median average penalty fee was $35 and in 2007, the average was $27.

Banks also did not offer enough information regarding how much it would cost to offer overdraft protection services when it was being offered.