Filene Study: Bank Fees Hit the Low-Balance Customers Hardest
The report, "What People Pay: Deposit Account Fees at Banks and Credit Unions," was written by Victor Stango, an associate professor of economics at the University of California, Davis, and Jonathan Zinman, an associate professor of economics at Dartmouth College. The data comes from a consumer panel on transaction account usage between 2006-2008.
The report showed that the average annual cost of fees for a share draft account at a bank was $183.14 or $15 per month. Of those fees, three-fourths came from NSF/overdraft fees. For credit unions the average annual cost of fees was $71.47 or $6 per month.
There are two possible explanations for the difference in cost between bank and credit union customers that the report offered. The first is that banks charge more for fees. The median overdraft fee is $33, while the median credit union fee is $23. The second explanation the report offered is that credit union customers make fewer overdrafts than bank customers or credit unions are less likely to impose overdraft fees when customers do overdraw their account.
When looking at the types of accounts that incur fees, the study found that fees were generally lower on accounts with higher balances for both banks and credit unions. However, the difference in fees on checking accounts or share draft accounts for low-balance accounts between banks and credit unions was substantial. In total fees, bank customers paid an average of $218 and credit union customers paid an average of $80. For overdraft fees, low-balance bank customers paid approximately $160 in fees where credit union low-balance customers paid around $42.
The authors also found that 69% of bank customers are low-balance accounts and 75% of credit union member accounts are low-balance accounts.
Mike Schenk, vice president, economics and statistics at CUNA, commented on the results of the report.
"In general, the paper reveals that compared to credit union members, bank customers pay substantially more in fees and that low-balance bank customers are particularly hard-hit, which is not the case with low-balance credit union members," Schenk said.
Schenk also pointed out that the study showed that bank-customer households pay an average of $132 per year in overdraft fees, which is an amount almost four times higher than the $35 annual average paid by credit union members.