U.S. consumers are overdrawing their checking accounts less frequently than at any time in the last 14 years, according to new survey data.
So far this year, the average consumer at a bank or credit union is overdrawing their checking account about seven times annually. That's down from a peak of nearly 10 overdrafts per year in 2008 and 2009, the economic research firm Moebs Services found.
Banks and credit unions have responded to the decline by raising their overdraft fees, says Michael Moebs, the firm's chief executive officer. The average overdraft fee hit $30 in the second quarter of this year, up from $29 in the previous three months.
"The combination of less volume and higher price results in a break-even in net revenue," Moebs says in a press release.
The number of overdrafts per account rose between 1999 and 2009, but since then it has been falling. Federal rules that took effect in 2010 and which let bank customers choose whether they want to allow overdrafts have undoubtedly contributed to the decline.
But what's surprising is that the drop-off has continued in 2012 and 2013, well after the new rules took effect. Customers who open new accounts are more likely to opt in to overdraft programs than are customers who had accounts when the new rules took effect, according to a recent report by the Consumer Financial Protection Bureau.
That finding might seem to suggest that the volume of overdrafts would begin to rise again. But that hasn't happened yet.
One key explanation for the continuing decline in overdrafts is that banks are doing less reordering of transactions than they used to do.
The reordering of transactions from high amount to low amount generally results in more overdrafts. But after being hammered by a flurry of lawsuits, large banks have generally abandoned the practice, at least for debit card purchases and automated teller machine withdrawals.
"That's going to make a difference," notes Rebecca Borne, senior policy counsel at the Center for Responsible Lending.
Also, consumers seem to be savvier and more frugal than they used to be.
The less money people spend, the less likely they are to overdraw their bank accounts. Moebs believes that the continuing slide in overdrafts is linked to belt-tightening by consumers who saw their take-home pay cut earlier this year when payroll taxes increased.
Surveys by Moebs Services also show a small uptick in the number of consumers who go to payday lenders for small loans. That's often a rational calculation for a consumer who needs $100, the overdraft fees charged by banks are usually higher than the interest rates at payday stores.
"We're seeing more people going to payday lenders," Moebs says.
Despite the fall-off in the volume of overdrafts, consumers are still paying their banks a lot of money in overdraft fees, says the Center for Responsible Lending's Borne. If the fees average $30, and the average account gets overdrawn seven times per year, that's $210 annually in overdraft fees.
"Seven overdraft fees per account is a lot," Borne said in an email. "That's significant, particularly for an account holder struggling to keep their account above zero as it is."