U.S. Bancorp on May 10 announced a flat overdraft fee that applies to smaller items in a move it expects will reduce the bank’s overdraft revenue by up to $300 million this year when combined with other bank initiatives and the effects of new federal overdraft legislation. The new fee takes effect Aug. 15.
The Minneapolis-based bank will charge customers $10 when overdrawing their account by $20 or less; it will charge $33 for payments that overdraw an account by more than $20. The bank will apply the fees to ATM transactions, automatic withdrawals, debit card purchases and check payments, Teri Charest, a bank spokesperson tells PaymentsSource.
The flat $10 fee replaces a tiered structure of $19 for the first overdraft, $35 for the next three, and $37.50 for the fifth, sixth and seventh overdraft, Charest says. The financial institution limits overdrafts to three per day.
U.S. Bank’s new fee structure focuses on the transaction size, not the amount of the overdraft fee, says Leslie Parrish, senior researcher for the Center For Responsible Lending, a Durham, N.C.-based organization whose goal is to eliminate abusive financial practices. A 2005-2006 study the center conducted found that debit cards triggered 44% of overdraft fees, and the median amount overdrawn to trigger the fee was $20.
“Half of the transaction amounts were more than $20 and half were below,” says Parrish, adding debit cards probably trigger the most overdrafts because consumers use them more today.
U.S. Bank developed the flat overdraft fee after surveying customers who complained of being charged too much when an inexpensive purchase overdrew their accounts, says Trent Spurgeon, senior vice president of consumer products. The flat fee makes U.S. Bank an innovator and a leader, Spurgeon tells PaymentsSource.
Banks pushed by federal legislation are responding to customer complaints, says Greg McBride, senior financial analyst at Bankrate.com, a North Palm Beach, Fla.-based consumer website. In the past six to nine months, they have started to set threshold amounts of $5 to $10 overdrawn before assessing an overdraft fee, he says.
“Much of consumer angst is caused by banks that charge a $35 overdraft fee for $4 cup of coffee,” McBride tells PaymentsSource.
Parrish speculates, however, federal overdraft legislation requiring banks to have customers opt in to overdraft protection is not attracting large numbers of customers, although she did not know how many U.S. Bank customers have signed up for the bank’s overdraft protection.
Generally when cardholders sign up for overdraft protection, their bank approves a transaction and charges them a fee for each transaction that overdraws the account, Parrish says. “If the person does not opt in, the bank denies the transaction,” she says. “The customer can think about whether he wants to make the purchase, and the bank does not charge the customer an overdraft fee.”
U.S. Bank’s fee structure makes overdraft fees more palpable, Parrish says.
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