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Overdraft fees still bring in money for banks

Santander is among the state’s four largest commercial banks.
Santander is among the state’s four largest commercial banks.David L. Ryan/Globe Staff

The largest banks in Massachusetts collected hundreds of millions of dollars in overdraft fees from customers here and in other parts of the country in the first three months of the year, even as consumer advocates and federal regulators call for limits on these charges.

Banks with at least $1 billion in assets reported overdraft fees separately for the first time under federal regulations adopted after the financial crisis. The state’s four largest commercial banks — Bank of America, Citizens Bank, Santander Bank, and TD Bank — collected a combined $517 million in overdraft fees in the first three months of the year.


The state’s largest community banks, Eastern Bank of Boston and Rockland Trust of Rockland, each generated about $2 million in overdraft fees.

Banks have relied on overdraft and other fees in recent years as low interest rates squeezed profits from lending and new regulations limited investment and other activities that produced revenues in the past. Overdraft charges became particularly controversial as many banks employed practices aimed at creating overdrafts and generating fees.

Regulators have since cracked down on many of those practices, for example prohibiting banks from automatically enrolling customers in costly overdraft protection plans — whether customers wanted them or not.

Nationwide, banks collected $2.5 billion in fees from customers who bounced checks or took out more cash from ATMs than they had in an account, according to data collected by SNL Financial, a Virginia research firm. Among the nation’s largest banks, overdraft charges accounted for as much as 40 percent of income from all fees.

“Overdrafts in particular are still very important, even to the big guys,” said Mike Moebs, founder of Moebs Services, an economic research firm.

Some banks rely more heavily on overdraft fees, in part because they have fewer lines of business such as investment banking and wealth services to generate income, experts said.


TD Bank, the fourth-largest bank in the state, collected $103 million in overdraft charges in the first quarter, 30 percent of its total fee income. Overdrafts accounted for less than 6 percent of Bank of America’s fee income.

“Our business mix is different,” said Judy Schmidt, a TD Bank spokeswoman. The bank does not make as much from wealth management and insurance fees, for example, she said.

“TD focuses on delivering everyday banking needs to a diverse group of consumers,” Schmidt said. “Overall, TD Bank’s noninterest income is lower, making overdraft fees appear proportionately higher.”

But the bank also processes customer checks and withdrawals from the highest amount to the lowest, rather than the order in which they are received. Consumer advocates say that practice can trigger overdrafts. TD Bank plans to end that practice in the first half of 2016, Schmidt said.

Overdrafts generated 14 percent of fee income at Rockland Trust, compared with the statewide median of 9 percent. Ellen Molle, a bank spokeswoman, said Rockland Trust doesn’t have as many consumer fees; for example, the bank offers a free checking account that avoids monthly and other transaction costs.

Overdraft fees have been a concern of bank regulators in recent years. Last month, the US Consumer Financial Protection Bureau fined Alabama-based Regions Bank $7.5 million for its overdraft practices, including charging customers for overdraft protection even though they had not opted for it. The consumer agency is reviewing bank overdraft practices and considering new guidelines.


Since most banks charge an average $35 for an overdraft, the costs for customers can add up. They are mostly borne by the young and poor, said Susan Weinstock, the director of Consumer Banking at The Pew Charitable Trusts in Washington.

“We think the fees are excessive,” she said. Many banks have improved their overdraft practices, by providing consumers with more information about the charges and eliminating overdrafts at ATMs and retail terminals by rejecting the transactions, she said, but more needs to be done.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com.