Debit Overdraft Fees Still Confound Consumers, Survey Finds

Two years ago, regulators imposed new rules to curb the fees banks charge consumers for covering overdrafts on debit cards. That was the idea, at least, but it hasn’t quite worked out as planned. A survey of more than 6,000 people from the Pew Center on the States found that consumers are still hit by fees that can be as high as $35 a pop. Pew found that nearly one in five people incurred an overdraft fee last year, nearly all of whom said they overdrew their account by mistake.

Those fees add up to big business for banks—an estimated $16 billion in ATM and debit card overdraft fees last year, just a 16 percent drop from the peak in 2009, according to Moebs Services, a banking consultancy in suburban Chicago.

The Federal Reserve’s reforms required banks to charge fees only to customers who “opted-in” to the overdraft programs. They launched aggressive—and at times alarmist—marketing campaigns telling consumers that if they didn’t sign up, their card might be rejected when they most need it. The Pew study shows that consumers didn’t understand what they were signing up for. Now more than half of overdrafters didn’t recall signing up for the coverage at all, and a third said they didn’t know their bank had an overdraft program until they were charged a fee.

Banks often say that consumers want to be able to overdraft their accounts in a pinch, but the Pew study found that three-quarters of overdrafters would rather have their transactions denied than processed and charged a fee for the service. The costs particularly hit the young and poor. Pew found that people under 44 are twice as likely to incur overdraft fees than older folks. Consumers who make less than $30,000 a year are also twice as likely to have the fees.

That consumers are confused fits with findings of an earlier survey by the Center for Responsible Lending. That study found: “Sixty percent of consumers who chose overdraft protection did so in part to avoid penalties if their debit cards were denied, even though such fees don’t exist. Similarly, two-thirds said they signed up to sidestep charges for bounced checks, which actually are covered under different programs.”

In February, the Consumer Financial Protection Bureau announced plans to look into overdraft fees, and in particular how banks marketed the programs to customers. They’ll try to see if the reforms went far enough.

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Bernanke Prods Savers to Become Consumers

December 22, 2011, 11:33 AM EST By Rich Miller

(Updates housing data starting in the 32nd paragraph.)

Dec. 21 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke finally may be catching a break: His easy-money policies are showing signs of speeding up the economic rebound three years after he cut interest rates to zero.

Housing may be nearing a bottom as record-low mortgage rates tempt more buyers into the market and confidence among homebuilders climbs to the highest since May 2010. Autos, another part of the economy sensitive to interest rates, are reviving, with carmakers reporting in November their highest sales pace in more than two years.

Banks also are starting to put more of their money to work, expanding commercial and industrial loans last quarter by the most since Lehman Brothers Holdings Inc. went bankrupt in September 2008.

“When the Fed sprinkles happy dust on the economy, we always respond,” said Allen Sinai, co-founder and chief global economist and strategist at Decision Economics in New York. “The happy dust has been out there a long, long time, and I think it finally may be settling in some places.”

Since the recovery began in June 2009, households have focused on saving rather than spending, while banks have concentrated on rebuilding capital instead of lending. That may be changing, as both have made progress in rebuilding their balance sheets, Sinai said.

He sees growth accelerating in the range of 2.5 percent to 2.75 percent next year from 1.5 percent to 2 percent this year, when the economy was hit by what Bernanke called “some elements of bad luck” in a Nov. 2 news conference. These include a run- up in oil prices caused by the Arab spring and a sell-off in the stock market triggered by Europe’s debt crisis.

More Bad Luck

More bad luck may be in store if Congress fails to extend a payroll-tax cut and special unemployment benefits beyond the end of the year. That could knock a percentage point off growth in 2012, reviving fears of a double dip, said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, is even more optimistic than Sinai. Crandall -- the most-accurate forecaster of the U.S. economy as of Dec. 1, based on Bloomberg calculations -- predicts growth next year of just over 3 percent, as companies become more confident about the outlook and expand their businesses.

The resilience of the economy will lift corporate earnings and stock prices, Sinai said. Operating profits of companies in the Standard & Poor’s 500 Index will rise by an average of 8 percent to 10 percent in 2012, and the stock gauge will end the year at 1,400, he forecasts -- up from 1,241.30 at 4 p.m. in New York yesterday.

Stocks Over Bonds

“Next year, stocks will do better than bonds,” Hoffman said. He sees stock returns in the “high single digits,” including dividends, compared with yields on 10-year Treasury notes below 2 percent.

Faster economic growth should be good news for President Barack Obama as he tries to secure a second term. It’s “possible” the jobless rate may be down to 8 percent by the November elections, he said Dec. 11 on the CBS television program “60 Minutes.”

Sinai and Dean Maki, chief U.S. economist at Barclays Capital in New York, agree.

“We see the unemployment rate at 8 percent at the end of 2012,” Maki said Dec. 14 in a radio interview on “Bloomberg Surveillance” with Tom Keene, compared with 8.6 percent last month. It will fall faster than many forecasters expect, in part because “more and more of the baby boomers are retiring every month,” he added.

‘Policy-Uncertainty Shock’

Big risks remain. The economy may be buffeted in the second half of next year by what Ethan Harris at Bank of America Merrill Lynch calls a “policy-uncertainty shock.” The co-head of global economic research in New York sees growth slowing to just over 1 percent in the third and fourth quarters of 2012, as households and companies wait to see what happens to former President George W. Bush’s income-tax cuts, which are scheduled to expire at the end of 2012.

Europe also is a concern. The sovereign-debt turmoil there and a deceleration in emerging-market growth may be “poised to knock us off course,” Federal Reserve Bank of Dallas President Richard Fisher said Dec. 16.

Demand “has slowly begun to strengthen domestically, yet developments in Europe, a slowdown in growth in emerging economies such as China and Brazil, and concerns about financial tripwires that might be triggered give rise to caution,” he said in a speech in Austin, Texas.

Fastest Expansion

The economy appears to be ending 2011 with the fastest expansion of the year, said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York. He forecasts growth of 3.5 percent in the fourth quarter, compared with what he said will be a downwardly revised 1.5 percent in the third. The Commerce Department already cut its third-quarter estimate to a 2 percent annual rate on Nov. 22 from 2.5 percent.

It was the late Nobel laureate economist Milton Friedman who first spoke of monetary policy affecting the economy with “long and variable lags,” as consumers and companies gradually adjust spending in response to changes in interest rates.

Transmission of this policy to the economy “has been gummed up” during the recovery, as households held back on spending and banks restrained lending, said Paul Ballew, chief economist at Nationwide Mutual Insurance Co. in Columbus, Ohio, and a Fed adviser. Now, “it’s starting to free up a bit.”

‘Well Above’ Average

The tangible-capital ratio for the banking industry stood at a post-World War II high of 8.5 percent in the third quarter, based on calculations by Keefe, Bruyette & Woods. The ratio -- which measures how much loss a bank can absorb before shareholder equity is wiped out -- is “well above” the 6.9 percent average since 1934, according to the investment bank.

With their balance sheets fortified, banks have increased commercial and industrial loans by an average annual pace of almost 10 percent in the third quarter, the highest since the comparable quarter in 2008, compared with a 1.7 percent decline in the past four years, based on Fed data.

U.S. banks also have moved to fill gaps left by crisis- plagued European counterparts as they reduce lending in America. San Francisco-based Wells Fargo & Co., the largest U.S. home lender, announced Nov. 2 that it was buying a $3.3 billion commercial real-estate-loan portfolio from Irish Bank Resolution Corp., formerly known as Anglo Irish Bank.

Better Financial Shape

Consumers also are in better financial shape, thanks to reductions in debt and the Fed’s record-low interest rates. Household-debt payments as a share of disposable income stood at 11 percent in the third quarter, the lowest since 1994 and down from a peak of 14 percent set in 2007, according to data from the central bank.

That has freed up money for spending, and the automobile industry is a beneficiary. U.S. light-duty car and truck sales rose to a seasonally adjusted annualized rate of 13.6 million in November, the best month since August 2009, based on data from Autodata Corp. in Woodcliff, New Jersey.

“We’re going to breach 14 million” for 2012 as a whole, said Ballew, a former director of global market and industry analysis for General Motors Co. in Detroit. He reckons sales this year will come in just below 13 million.

“It’s a good time to buy,” he said. “Affordability is at an extremely high level, and auto-loan rates are at the lowest they’ve ever been.”

Aging Cars

The average age of cars and light trucks on the road today has risen to 10.6 years, Jenny Lin, senior U.S. economist at Dearborn, Michigan-based Ford Motor Co., said on a Dec. 1 conference call. That’s above the seven-to-7.5 years Ballew says is the long-term average.

“We are going to see more and more of this pent-up demand realized,” Lin told analysts and reporters.

The story is much the same in housing. Low mortgage rates and the steep drop in prices have made homes more affordable than they’ve been in years, said Thomas Lawler, a former economist with government-backed mortgage company Fannie Mae in Washington, who is an independent housing consultant in Leesburg, Virginia.

There’s also a lot of pent-up demand in this market, as many young adults put off moving away from their parents because of the tough economic times, he added.

“Residential-investment spending has hit a bottom, and it probably will pick up a little bit next year,” he said.

Rising Home Sales

Sales of existing homes climbed 4 percent in November to a 4.42 million annual pace from a revised 4.25 million rate in October, the National Association of Realtors reported today. The revisions stretched back to 2007, reducing the number of homes sold in the U.S. by an average of 14 percent, magnifying the depth of the slump.

Now, “the market feels a little bit better than we would have expected,” Larry Sorsby, chief financial officer at builder Hovnanian Enterprises Inc. in Red Bank, New Jersey, said in a Dec. 15 call with analysts. While sales historically fall in November, “this year we’ve not seen as dramatic a slowdown as we have seen in recent prior years.”

The National Association of Home Builders/Wells Fargo index of builder confidence rose to 21 this month, the highest since May 2010, from 19 in November, the Washington-based group said Dec. 19.

Builders broke ground last month on the most houses in more than a year, led by a three-year high in multifamily units. Starts increased 9.3 percent to a 685,000 annual rate, the best since April 2010, Commerce Department figures showed yesterday. Building permits, a proxy for future construction, also rose to a more than one-year high.

May Improve

Housing starts have averaged an annualized, seasonally adjusted 653,000 in the last three months, up from an average 605,000 in the prior three months and 539,000 in the fourth quarter of 2010. They may continue to improve in 2012 to 675,000 for the year, said Hoffman, the second most-accurate forecaster of this statistic, according to Bloomberg calculations. He sees economic growth accelerating to a “modest” 2.5 percent next year from about 1.75 percent in 2011.

“Bernanke was right; there was an element of bad luck this year,” Crandall said. “Things don’t look bad for the U.S. in 2012.”

--With assistance from Craig Trudell in Southfield, Michigan. Editors: Melinda Grenier, Ken Fireman

To contact the reporter on this story: Richard Miller in Washington at rmiller28@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Consumers No Scrooge with Sale of Seasonal Decor in U.S.

December 06, 2011, 7:26 PM EST By Chris Burritt

Dec. 6 (Bloomberg) -- Peggy Curtis spent Thanksgiving week out of work, the first layoff in her 37 years making cigarettes in a Reidsville, North Carolina, factory. Instead of moping, she went shopping for holiday decorations at Home Depot Inc.

“The economy is tough, but that’s not going to stop me,” said Curtis, 58, whose $600 spree so far includes enough lights to illuminate nine Crape Myrtle shrubs. “I love Christmas.”

With little to cheer about these days -- 8.6 percent unemployment, fears of European contagion -- Americans are splurging on LED lights, 16-foot-tall inflatable Santas and pre- decorated artificial trees. This year U.S. consumers will spend $6 billion on decorations, the most in at least seven years, according to the National Retail Federation, which began tracking the data in 2005.

Home Depot, the world’s largest home-improvement retailer, and second-biggest Lowe’s Cos. are trying to capitalize on the holidays, boosting orders for trees and decorations to help offset sinking demand for appliances amid projections that housing prices will keep falling next year.

“This is a business we should own,” Home Depot Chief Financial Officer Carol Tome said by telephone from Atlanta, where the company is based. “We were selling the most trees of any retailer in America, but we weren’t offering the ornaments or the light strings or the tree stands. So we expanded our assortment.”

Holiday decor sales may climb 8.1 percent this year, rising for a second straight year, according to the Washington-based NRF, citing an October survey of consumers by BIGresearch. More than 68 percent of consumers may indulge, the highest level in three years, the NRF said.

Fourth-Quarter Sales

Pushing trees, ornaments and lights will help fourth- quarter sales at Home Depot and Lowe’s, Joe Feldman, an analyst at Telsey Advisory Group in New York, said yesterday. Typically the last quarter of the year is the slowest for the home- improvement chains, generating about 22 percent of revenue.

Shoppers are drawn by new technology, Lowe’s Chairman and Chief Executive Officer Robert Niblock said in an interview. Hot sellers include solar-powered lights, LED bulbs that keep burning even if one breaks and a $99 gadget that makes lights blink in time with “Jingle Bells” and other carols.

Thomas Schuitema, who owns the Broadway Bar & Grill in Grand Rapids, Michigan, “had to have” a string of LED lights that create the effect of snow falling down each bulb. They cost $160 and now adorn his restaurant.

“They just caught my eye,” said Schuitema, who has been decorating the eatery for 18 of his 54 years.

Inflatable Decorations

During the past decade, home-improvement stores have taken advantage of their size -- 10 times bigger than the typical drugstore -- to grab sales with ever-growing displays of trees and inflatable decorations, said Scott Manning, Home Depot’s merchandising vice president in charge of seasonal items.

Since selling its first cut tree 26 years ago, Home Depot has given holiday decor more space and stepped up marketing. It displays garlands and ornaments at store entrances and last month gave buyers of more-efficient LED lights a $5 rebate for trading in their old incandescent strands.

At a Lowe’s in Greensboro, North Carolina, an inflatable Santa waves and nods at shoppers entering the store. It’s new this year, as is a blow-up Santa and sleigh at Home Depot, which has boosted holiday sales every year through the economic slump, said Jean Niemi, a company spokeswoman.

Inflatable Santa gets around. He drives motorcycles and airplanes and helicopters. At Lowe’s, he looms over the entrance to the garden center. Inside the store, up on a shelf, an outhouse door pops open and Santa pops out, with an elf holding his nose.

Cut Trees

Home Depot has boosted sales of holiday merchandise by three times in the past six years, Manning said. It sells the most cut trees, more than 2.5 million in 2010, and bought about 10 percent more this year, he said. He declined to provide sales figures.

Lowe’s, based in Mooresville, North Carolina, increased holiday orders by 5 percent to 10 percent in each of the past two years after “pulling back” on the bet consumers would buy fewer non-essential items including decorations, Niblock said.

Americas are looking to “create something positive,” Manning said. “People are staying closer to home. There is so much negative news out there.”

--Editors: Robin Ajello, Kevin Orland

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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