Regulatory Failure Du Jour, Overdraft-Fee Edition

This is a chart of US banks' overdraft revenue over the past 13 years. It was growing steadily until the Dodd-Frank Act passed in 2010, at which point it dropped for a couple of years, but now it's back on its upward path, and it's projected to hit a new all-time high by 2016. (The source is Moebs, here and here.)
(click to enlarge)

This chart is not what I expected to see when I wrote an NYT op-ed last year, talking about the way in which the new rules governing overdrafts were resulting in banks charging monthly fees for checking accounts instead. I said in that piece that the standard checking-account business model had been "upended" by Dodd-Frank broadly and by the end of automatic overdraft protection in particular. No longer, I said, could big banks count on a steady source of income from relatively poor Americans paying $30 in charges for a $4 cup of coffee.

But if you look at this chart, the drop-off in overdraft income was relatively modest. Overdraft fees fell from $37.1 billion in 2009 to $31.6 billion in 2011 - which was still higher than they had been in 2006, or any year previously.

This, it seems to me, is a clear failure of behavioral economics - or, to put it another way, shows the degree to which a determined corporation can circumvent rules designed to prevent fee-gouging. Under the new regulations, banks could no longer automatically sign account-holders up for these huge overdraft fees; instead, those account holders had to opt in. But a study last year from the Pew Charitable trusts - which came out a couple of months after my op-ed - found that "more than half of those hit with overdraft fees did not believe they had opted in to the policies."

Back in 2010, I was depressed that so many frequent overdrafters had opted in to the schemes, but hopeful that the FDIC would put an end to banks sucking hundreds of dollars a year in overdraf! t fees from the very customers who could least afford them. Evidently, that didn't happen: with Moebs now projecting that overdraft fees will continue to rise indefinitely into the future, it looks like all of the reforms did little more than to force a temporary setback in terms of banks' overdraft-fee income. The regulators, it seems, have lost again.