Some Customers Pay To Be Late

A key premise in the defense of financial institutions' NSF fee and overdraft fee revenue generation is that some customers are going to overextend — and they accept that they will need to pay to do so. In evaluating their options, savvy consumers are better off overdrawing their bank accounts because, unlike with credit card companies and other businesses, the fixed NSF charge doesn't vary with an outstanding balance.

So goes the argument made by many, including Austin, Texas-based Sheshunoff Management Services. In its comment on the interagency guidance, Sheshunoff attributed the start of the "late fee" market to businesses and utility companies that in the early 1990s began to offer consumers the ability to pay a fee if they chose to delay a payment. Today, Sheshunoff writes, "everyone is aware of bills that state the amount and date due, and then an offer allowing payment after the date due, for an additional fee. In effect, this is the same as presenting an NSF, and yet the merchants explained it clearly and made it easy for the consumer."

The company estimates that late fees collected by businesses in 2003 totaled $57 billion or 2.5 times the NSF fees collected by financial institutions. "Financial institutions needed to respond to this growth and prevent future loss of revenue," contends Sheshunoff.