In theory, charging someone a fee for running out of money doesn’t make much sense. In practice, overdraft fees are a lucrative business for banks.

Overdraft fees

In the US, consumers will spend more than US$26bn on overdraft fees this year, according to a new report by the Center for Responsible Lending, a research group. Bank customers spent around US$10bn five years ago. The worsening economy only partly explains the rise. The increased use of debit cards raises the risk of becoming overdrawn, while banks are also contributing by increasing the fee per overdraft, introducing fees for remaining overdrawn over a certain number of days, and charging a fee for each transaction.

Last month, senator Christopher Dodd introduced legislation to rein in overdraft fees. In response, Bank of America, JPMorgan and Wells Fargo voluntarily reduced fees and altered certain conditions—mainly waiving fees for going overdrawn by only a few dollars and capping the number of times a fee can be charged per day. Although it hurts them financially, for maligned banks it may help restore the balance of consumer goodwill that long ago fell into deficit.