The Wall Street Journal has an excellent front-page investigation into how banks near military bases are gouging customers with overdraft charges.
Mark Maremont and Tom McGinty analyze FDIC data and finds that seven of the worst 10 banks for overdrafts (as a percentage percentage of overall deposits) are located on military bases or near them. The overdraft racket, which charges super-high interest rates for short-term loans, was seriously damaged by reforms during the financial crisis. But the WSJ shows that it’s hardly been stamped out.
The numbers are damning.
Fort Sill National Bank in Lawton, OK, which has $286 million in deposits, charged its customers service fees (which are mostly overdrafts) totaling $52 million last fiscal year.
Put another way, its average depositor had about $3,400 in their account last year and paid $620 in fees on it—18 percent.
There are presumably lots of Fort Sill customers who had no overdrafts or just one or two. Think about the worst 5 or 10 percent, who surely have overdrafts well into the four figures. The WSJ gets the bank’s CEO defending his overdraft fee stream:
As for questions about the bank’s high average fees per account, Mr. Davis says many people spend more than that annually on cable TV. “Why don’t we tell the soldiers how much they can spend on cable TV?,” he says.
Fort Sill National Bank has won the Army’s Distinguished Bank Service Award 10 times since 1990, most recently in 2012…
Fort Hood National offers a zero-interest “Fresh Start” loan that lets customers pay large overdraft balances over time. In an indication of the volume of overdrafts at the bank, a 2012 bank-regulator report found 22% of its consumer-loan portfolio consisted of Fresh Start loans.
The military angle is eye-catching and important, but this isn’t just a military story. Fort Sill National Bank has 80 branches and the WSJ quotes its CEO saying just 15 percent of them are on military bases. Many of them are in Walmarts.
The worst fee-charger the Journal found is Sunbank of Phoenix, owned by Kansas City’s Dickinson Financial Corporation II, which all by itself (this is a story, Missouri journalists!) owns five of the worst 10 banks on the Journal‘s list.
To make matters worse, TARP kept this outfit afloat during the financial crisis with $153 million in capital and taxpayers ultimately took a $68 million bath on Dickinson’s debt, according to SNL Financial.
One thing the Journal doesn’t get at but I’d like to see explored (as I wrote a couple of weeks ago) is just how Fort Sill and banks like it got their customers to sign up for overdraft “protection” that is clearly so damaging to their bank accounts. The Fed’s reforms four years ago forced banks to make overdrafts an opt-in feature.
How have these banks marketed overdrafts to customers? Have they tricked people into signing up? We get a hint at that from one of the Journal‘s anecdotes:
“If you use your debit card and the money’s not there, they should cut you off,” she says. There were times, she says, “when I was only 50 cents or $1 off, and they charged me $35.”
Is there data on overdraft sign-up rates at banks, and if so, who has the highest rates and why?
I’ll bet you a $35 overdraft charge there are lots of good stories in those questions.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.