FITB, USB to Raise Overdraft Fees

Fifth Third Bancorp (FITB - Analyst Report) and U.S. Bancorp (USB - Analyst Report) are set to hike the overdraft fees later this month. The hike comes almost after the overdraft fees remained steady for a two-year period.

According to a survey conducted by Consumer Federation of America, many more banking institutions are about to follow this trend. At present, the average overdraft fee is $35 at large U.S banks.

Currently, Fifth-Third bank charges $25 for the first overdraft transaction, $33 for the next three transactions, and then $37 for the subsequent transactions. Later this month, the bank will begin charging $25 for the first overdraft and $37 for the following transactions.

This significant hike in fees will affect the consumers who overdraw multiple times in a year. However, Fifth-Third is eliminating its $8 per day fee for overdrawn balances for three or more days. The bank expects to make its fee structure more transparent by adopting these changes.

Similarly, USB announced to elevate overdraft fees to $15 from $10 for transactions worth $15 or less. Also, for transactions of more than $15, it plans to hike the fee from $33 to $35.

Further, the bank has decided to eliminate early account closure fees on checking, savings and Individual Retirement Accounts (IRAs). The bank will not charge any fee for balances overdrawn by $10 or less. As per the bank, the hike is a part of its general assessment of deposit fees.

The overdraft fee hike comes as a major setback for customers, who are already reeling under high fees. Consumers have always condemned high overdraft fees, as an average consumer with standard balance incurs overdraft multiple times in a year.

Earlier, banks used to fraudulently charge excessive overdraft fees by processing transactions in order from largest to the smallest. This received severe criticism from the customers, who filed various lawsuits against several banks and demanded compensation. Soon after, under the Dodd-Frank financial reforms, it became mandatory for the banks to get approval of the customers before charging for overdraft balance.

Conclusion

Clearly, the sudden rise in overdraft fee looks unfair to the customers, as this will expose them to high costs for undertaking the overdraft facility. As for the banks, this is a new means for generating higher revenue.

Now the inflated fees that banks charge for smaller loans are required to be repaid within a few days to stay away from additional fee. This reflects the fact that the payday lending for some customers will be a troublesome affair.

Currently, shares of Fifth-Third Bank retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, U.S Bancorp retains its Zacks #3 Rank, which translates into a short-term Hold rating.