The Wall Street Journal looked at the U.S. banks where fees make up the highest percentage of revenue. Five of the top 10 also happen to be the five banks with the most branches located inside of Walmart stores.
The average bank in the U.S. only gets about .7% of its revenue from fees charged to customers. But the five banks with the highest number of in-Walmart branches get anywhere from 11.3% to 20% (median 12.7%) of their revenue from these fees.
And while the bank with the highest percentage of revenue from fees (Sunbank, at 20.9%) only has 12 branches, all 12 of them are in Walmart stores.
Banks generally don’t break out which particular fees contribute to this chunk of revenue, but overdraft fees are widely believed to make up the largest portion of any bank’s revenue from fees.
The CEO of Texas-based Woodforest bank, with more than 700 Walmart locations, tells the Journal that around 78% of his bank’s $271 million in fees comes from overdrafts.
While some bank customers look at overdraft fees as a low-cost alternative to payday lending — allowing them to bounce a check for a couple hundred bucks then pay a fee for the privilege a week or two later — when you actually do the math, there isn’t much difference.
The Journal talks to one Woodforest customer who knowingly overdrew her account, aware that when her next paycheck was deposited it would be dinged for a $30 fee. She believes this is cheaper than a payday loan, but the equivalent APR is around 300%.
While federal regulators have previously issued guidance calling overdrafts a form of credit, they have allowed these fees to remain exempted from the federal Truth In Lending Act, which provides some consumer protections and often requires a formal credit agreement.
The Consumer Financial Protection Bureau has been probing the topic of overdraft fees for the last couple of years, to consider whether the more than $30 billion taken in annually in fees might be doing more harm than good, and if the price tag for these fees is in line with the actual cost to the banks.
The 2010 financial reforms has curbed some overdrafting by requiring banks to get customers’ permission before enrolling their debit cards in automatic overdraft programs. In response, many banks have simply raised the fees they charge for people who cross the line into overdraft territory.