payday lenders.

"What we're offering is a service that members want and need, and if they don't get it from us, they'll go elsewhere to get it," he said.

Education is the best defense against accusations of excessive fees, he said. Strunk & Associate's 1,400 bank and 300 credit union clients are advised to produce semi-annual disclosures that explain to members how the service works, which transactions trigger it, and provide illustrations of different possible overdraft payment situations.

While financial institutions maintain they charge reasonable overdraft fees, the average cost per overdraft has increased significantly in the past decade, from $16 in 1997 to nearly $26 this year.

For years, the price of overdrafts kept equal pace with the consumer price index, but have far outpaced CPI growth since 1997, said Mike Moebs, CEO of Chicago-based Moebs $ervices, a leading economic research firm that has provided statistics to the Federal Reserve Bank for 15 years.

Increasing demands for Internet services, Y2K costs and increased regulatory requirements after 9/11 all contributed to a need for non-interest income to make ends meet, Moebs said.

Additionally, Moebs said, net interest income figures have not kept pace with the CPI, creating an earnings gap that, combined with increased technology costs, has

been filled as needed with non-interest income sources

like NSF fees.

The economist said he predicted the shift in the financial services business model years ago, when rate-related income no longer provided for capital growth.

"We saw the change in the data, and predicted institutions were going to see a greater amount of fee income assessed for two reasons: to contribute to the bottom line to make money, and to cover risk," Moebs said.

"But to say that 25 years ago was heresy. I had to be light on my feet or they'd tar and feather me.

And the reception wasn't much better at community banks," he said.

The economist said technology has contributed to the rise in non-interest income in more ways than increased expenses. Thanks to the rise of the Internet, online banks with low overhead are creating hard-to-beat competition for loans, and driving up cost of funds with high deposit rates.

So why have consumers been willing to pay higher NSF fees to make up the gap? As Davis said, because consumers like the service.

"We firmly believe that consumers are always going to need small dollar loans in some fashion, unless they substantially modify their financial behavior, and history tells us they're not going to do that," Davis said.

"Consumers tend to spend everything they make. They're not deadbeats, but they're not liquid, either. And, data shows around 70% don't reconcile their checking accounts each month."

Davis said even his wife, who he considers to be a smart money manager, doesn't balance her checkbook, and instead keeps a running total of transactions and withdrawals in her head, allowing for a certain margin of error.

"She's willing to pay for an occasional mistake, and I think she's like most consumers. Now, the people in Washington will say she should balance her account, and she probably should, but she's not likely to. People don't have time to keep track of every penny. Time is worth more than that these days," he said.

Moebs said the increasing popularity of allowing debit card and ATM withdrawal transactions to overdraft accounts speaks volumes about how American consumers have embraced the service.

"It's very interesting that at an ATM, a consumer can query his or her balance. So, they're in complete handle of their wits at the ATM, and yet most of the time, people still choose the overdraft," Moebs said.

"Should government enter into those ATM or debit transactions? I don't think they have the right, and the data tells us the American consumer believes that, too. They want the ability to make their own decisions."

Eileen Rivera, president/CEO of $295 million FAA First Federal Credit Union, said she had a bit of a soul-searching discussion with her board at their annual planning session last week, because NSF fee income has risen so dramatically.

NSF-related income accounts for 37% of FAA First's non-interest income, more than debit or credit card interchange fees. About a year ago, the credit union began allowing debt card transactions to

overdraft, which increased revenue

significantly.

"It's such a large source of income, and very important to us, but at what point does it stop being in the best interest of our members?" Rivera said.

Complicating matters further is the fact that an overdraft payment service supports the institution's mission, which is to provide financial peace of mind to those who work in the air transportation industry.

"We believe we have members who, when they are working, because of the nature of their jobs, can't contact us to make other arrangements when they go negative," Rivera said. "We don't want them worried about their checking account while they are focused on the safety and security of the air transportation industry."

Additionally, many FAA First members are affluent air traffic controllers, and would prefer an overdraft fee to the embarrassment of having a transaction declined, she said.

However, Rivera said she wonders if some members aren't taking the service for granted.

"We send letters to those who appear to be abusing it, and we include loan application and suggest they apply for a line of credit. And, if they bring their account current within 30 days, we discontinue the privilege. I feel like we've got the pieces in place to help us, as well as our members, maintain control," she said.

These days, the CEO said she's leaning toward

offering new checking members a $500 line of credit to cover overdrafts.

"There's a big difference between our $2 transfer fee and our $25 overdraft or courtesy pay fee," she said.

Davis said the way an institution markets its overdraft payment service contributes to whether or not members abuse the service.

"Many of our clients use our OOPS program, which stands for occasional overdraft payment service. Now, that name tells you that it's not supposed to be relied upon, it's not a recurring service," Davis said.

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