TIME Banking

How Big Banks Are Finally Getting It Right

It was known as the $39 cup of coffee: Swipe your debit card to pay for your latte and drop your bank account balance into the red, triggering an overdraft fee in the process. Now, that exercise in frustration might finally be getting a rest: New data shows that more Americans will be able to dodge that $35 bullet, especially if they have an account at a big bank.

Overdraft fees were the bane of customers’ existence, but are a revenue lifeline for banks and credit unions, especially after regulatory credit card crackdowns limited how much they could earn from those. They earned around $32 billion last year off our careless swiping — and that was three years after federal reforms that prohibited financial institutions from automatically subjecting people to the fees kicked in — so these fees seemed destined to stick around, no matter how much we hated them.

New research from financial research company Moebs $ervices finds that something interesting is happening, though: Overdraft fees are there, but increasingly, banks and credit unions are waiving them if the customer just drops into the red by a small amount — say a cup or two of coffee.

We seem to be at a tipping point: Just over half of financial institutions with more than $50 billion in assets waive overdraft fees for small-dollar transactions, with an average cutoff amount of a little over five bucks.

Across all financial institutions, Moebs finds that just over one in four have a small-dollar overdraft waiver in place, with an average cutoff amount of $7.40, although cutoffs range from a single dollar all the way up to $50.

Smaller banks and credit unions are least likely to extend these waivers for low-amount overdrafts: Only about 15% of institutions with $100 million or less in assets offer them, and just under 11% of credit unions.

CEO and economist of Moebs $ervices Mike Moebs says that although smaller institutions might not have these policies on paper, it’s likely that they might extend waivers when customers call and ask.

Aside from the threat of further regulation, Moebs says bank technology has improved so institutions can get more detailed with their parameters. He says consumers have been demanding more customer-friendly features (and regulators have been listening to their complaints).

The dearth of paper checks helps, too, he says. “[The] lack of float due to only about 10% of payment system is paper checks is another factor.” With money moving from one place to another pretty much in real time, it’s easier for banks to be a little more flexible.

There are some distinct regional differences in Moebs’ data. Kentucky and New Hampshire residents have better than a 50% shot of getting their small-dollar overdrafts waived, versus fewer than a 20% chance in Florida, Maryland, Nevada and Wisconsin. There’s a similar split among metro areas, ranging from zero in Denver to 44% in San Antonio. (The overall averages are higher because banks in rural areas are more likely to offer waivers than those in urban or suburban settings.)

Here, Moebs says local competition is a contributing factor. If one bank offers a waiver, especially one with a higher amount, its competitors will feel pressure to follow suit.

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