LAKE BLUFF, Ill.--()--Shiela Bair (FDIC) tried to kill overdrafts. Elizabeth Warren (CFPB) tried to kill overdrafts. The US Treasury (OCC) tried to kill overdrafts. Despite all of the regulatory efforts to inhibit the use of overdrafts (OD), over 100 million American consumers (77 percent of more than 130 million checking accounts) have opted in for overdrafts (ODs) on debit and ATM card transactions. Since its peak at $37.1 Billion in 2009, OD revenue has fallen for six straight quarters, ending at $30.1Billion for the first quarter of 2011. Like the mythical bird, the Phoenix, ODs are becoming reborn. According to Moebs $ervices, an economic research firm, OD revenue at the end of the second quarter of 2011 is up over $700 million at both banks and credit unions. Additionally, the average number of overdrafts per household increased during the same period. “From our study of usage, behavior, and prices of over 2,500 depositories and a million checking accounts, Americans not only want ODs but are using overdrafts with increased frequency,” said Mike Moebs, CEO and Economist of Moebs Services.
“From our study of usage, behavior, and prices of over 2,500 depositories and a million checking accounts, Americans not only want ODs but are using overdrafts with increased frequency”
|2011 2nd Qtr||$30.8||$28.00||7.5|
|2011 1st Qtr||$30.1||$28.00||7.4|
|Source: Moebs $ervices Surveys & Analysis|
ODs occur when a consumer unintentionally or intentionally allows their checking account to go to a negative balance. According to Moebs, two thirds of the time ODs are unintentional, due to a lack of keeping track of transactions, or an unusual financial transaction such as an unexpected medical bill or a car repair. “$40 is the median negative balance,” said Moebs. “The other 26 percent of consumer checking account holders do however intentionally overdraw their checking account.” The Moebs study found that 34 million Americans utilize ODs to fill a short fall of funds and 19 million of these go to payday lenders.
Increased Regulation Does More Harm Than Good
“Those Americans that rely on overdrafts and advance payday loans, do not have the FICO score to qualify for a line of credit or credit card,” said Moebs. “By creating unintended consequences, such as predatory lending from loan sharks, adding limits to overdraft volume or price will do more harm than good.”
About Moebs $ervices
Since 1983, Moebs Services has been collecting primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition and analyzing the data in a counter intuitive manner, which provides solutions that make sense. For more info please visit www.moebs.com.