Monday, January 12, 2009

$37 Billion Each Year is Lost.. banking fees associated Non Sufficient Fund and Over Draft Protection (NSF/ODP) fees. That is a staggering figure, $37,000,000,000. That is approximately $368/year for each household with a checking account. Most folks with a checking account do a good job of keeping it balanced. A recent study by the FDIC finding that customers with 5 or more NSF transactions accrued 93.4 percent of the total NSF fees reported for the 12-month period. Overall, about 20% of checking account holders are responsible for 80% of the NSF/ODP fees collected by banking institutions. This means that 1 in 5 checking account holders made it through high school and to an age of majority without the knowledge or self discipline to balance a checking account.

Texans paid over $2.5 billion in NSF/ODP fees last year.

The banks are doing what they can to increase revenue and are therefore doing all they can to employ strategies to increase NSF/ODP transactions. Currently, for banks, 74% of reported service charge income is from NSF/ODP fees.


The increased use of overdraft protection programs, rising NSF/ODP fees, transaction posting methodologies and increased NSF occurrences on smaller dollar transactions by consumers are the key elements in the unprecedented rise in the cost of writing a check against insufficient funds.

It has been well reported that many banks and credit unions assign an order of posting in amounts from high to low. That is, a $2,000 debit will be posted before a $15 debit, despite the presentation of the $15 debit first.

This ongoing trend has banks paying debits from high dollar to low dollar based on transaction type. Banks typically pay teller cash items, then POS (Point of Sale)/Debit card and in-house Automated Teller Machine items before paper check items. Based on Bretton Woods’ experience, this methodology increases fees and reduces risk of the bank absorbing losses on NSF items paid by the bank and puts the risk on third parties (3rd party ATM, Automated Clearing House, and online/bill payments).

This order of posting has now expanded to encompass transaction types with banks and credit unions typically paying teller cash items, then POS /Debit card and in-house ATM items before paper checks.

The ongoing payments evolution from paper checks to debit cards, ATM and other electronic (ACH) transactions contribute to the increase in fees to consumers. That is, the debit card and ATM transactions are typically smaller dollar amounts and as such, are usually posted after larger dollar items – resulting in more transactions presented against insufficient funds.

Increased profitability is ensured because consumers now use debit cards, ATM and other electronic transactions as preferred methods of payment rather than checks.
Banks will capitalize on an individuals irresponsibility, teach your kids to be responsible. I was a single dad to my oldest daughters and they witnessed my struggle to put bread on the table. #2 daughter can pinch a penny so tight that with a touch of carbon it becomes a diamond. #1 daughter is just about as frugal and is making a good life with her husband and family. V's daughter could teach all of us a thing or two about money management. #3 and 4 daughters I worry about just a bit. #3 has just started a family and I get the occasional call from Sally Mae concerning her student loans. #4 is still with her mom in Delaware and I just have to hope that she is getting the financial education that is needed for today's economy.

A bit of personal responsibility and the knowledge of how money works is all that is needed to put billions of dollars back into our economy. No bailout required.

For more on this issue, go here (.pdf).

1 comment:

Tim Covington said...

One of the things I like about my bank is that they count the deposits before the withdrawals. I had an auto-bill pay from a company take a year's worth of payments instead of a month's (last time I did auto-pay). Since my (and my wife's) paycheck hit before the charge on the same day, this meant I did not get overdrawn.
My last bank, did not do this. When I was unemployed, this cost us some money a couple of times.