Overdraft revenue at banks, thrifts and credit unions has stagnated over the last year, according to new research, as the industry absorbs the impact of past regulations and braces for potential future ones.
Fees from customers with overdrawn accounts generated $31.1 billion in January, February and March, according to an estimate from the economic research firm Moebs Services. In the first quarter of last year, the company estimated that overdraft revenue totaled $31.0 billion — a negligible difference.
Michael Moebs, the chief executive officer of Moebs Services, expects overdraft revenue to begin rising again, as consumer spending increases, and to reach its earlier peak by no later than 2018. But regulators, who are expected to release a report on overdraft fees in the coming weeks, will have a big say in whether that prediction comes true.
Also, the volume of overdrafts has declined, an indication that banks are taking steps to be more consumer-friendly.
Overdraft revenue in the first quarter of 2013 was down 2.8% from the last three months of 2012, when many consumers spent beyond their means to pay for holiday shopping.
"February and March are historically the lowest months," Michael Moebs said in a news release, "because the consumer is trying to recover from the holiday season, which can be hard on the wallet and purse."
Because banks are not required to report their overdraft revenue, the Lake Bluff, Ill.-based Moebs Services makes quarterly estimates of the industry-wide total using other data sources and survey responses.
Overdraft revenue climbed rapidly until peaking at $37.1 billion in 2009, then fell for two consecutive years as new regulations took effect, and has since largely stabilized.
During the recession, one way that banks countered the downward pressure on overdraft revenue was by raising their overdraft fees. But industry sources say that prices, which are now as high as $35 or $40 in some cases, have generally stopped increasing.
"In most markets, banks are about as high as they can reasonably get," says Lynn David, the chief executive officer of Community Bank Consulting Services. "I'm not seeing many increases."
Moebs estimates that roughly two-thirds of banks are keeping their overdraft fees flat, while about 20% are raising their prices, and about 10% are lowering fees.
Other changes in how overdraft fees are being assessed may also be reducing overdraft revenue at many banks.
For example, some banks have been instituting or raising thresholds below which they will not charge an overdraft fee — reducing the number of $35 fees charged on $2 cups of coffee.
In addition, banks are setting stricter limits on the number of overdraft fees a customer can be charged within a day or a month. And they are making greater efforts to reach out to chronic users, industry consultants say.
All of these steps may be driving down the number of overdrafts by consumers. Indeed, in the first quarter of this year, overdraft volume reached its lowest level since 1999, according to Moebs Services.
The industry saw overdraft revenue fall in 2010 and 2011 following the requirement that customers be given the option to opt in to overdraft services. Lawsuits targeting some of the largest banks also prompted many institutions to stop reordering transactions from high amount to low amount, a controversial practice that had increased overdraft volume.
Now banks are anticipating another round of regulation. Regulations are widely expected to follow the impending release of a report on overdraft fees by the Consumer Financial Protection Bureau.
"I think there's concern about the future, whether there will be regulation that will greatly curtail these programs," says Jo Ann Barefoot, an industry consultant at Treliant Risk Advisors.
Consumer advocates have been pressuring regulators to put stricter limits on the ability of banks to charge overdraft fees. Last week, the Pew Charitable Trusts released a report highlighting banks that it says have adopted best practices.
Barefoot adds that many banks are trying to ensure that they will not remain overly reliant on overdraft revenue whenever any future regulations take effect.
"I do think that the large banks are trying to be proactive," Barefoot says. "With the small banks, it's more of a mixed picture."