Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Why There's Blame to Go Around on Consumers' Rising Bank Overdrafts

NEW YORK (TheStreet) -- U.S. consumer bank overdrafts are up, but consumers shouldn't feel they're solely to blame.

Moebs Services, a Lake Bluff, Ill.-based economic research firm, says that the recent increase in overdrafts is tied directly to the Jan. 1 payroll tax hikes engineered by Congress and signed off by the president.

In its latest quarterly study, Moebs says overdrafts rose $200 million from the first quarter to the second quarter of 2013.

On a yearly basis, bank overdrafts remain below last year's levels, standing at $31.3 billion from $32 billion in the fourth quarter of 2012.

The quarterly rise is no coincidence, Moebs says.

Consumers simply have less cash to cover purchases and payments. Besides the payroll tax issue, the sequester, which cut government spending and triggered March 1, also fueled uncertainty among consumers.

"With the tax increase in Social Security Jan. 1, stemming from government automatic budget increases, consumers net pay was reduced," says Michael Moebs, chief economist and CEO at Moebs Services. "It takes three to six months for economic fiscal changes to fully show up in the marketplace, and the cut in the average pay hit consumers' pocketbooks in the second quarter of this year."

Moebs says reduced overdraft volume reflects the belt-tightening by the consumer, especially in the all-important back-to-school shopping season -- the second-busiest shopping season of the year, behind Christmas.

"The back-to-school season shows parents were conservative in school-supply purchases, and recently released individual income data reflects very small increases so far this year," he says. "The automatic budget cuts, or sequester, have created uncertainty for consumers. Keeping the checkbook balanced and avoiding overdrafts reflect these economic trends."

Yet there is some good news in the consumer overdraft data.

Moebs says that bank overdrafts declined to just seven per consumer, per year -- the lowest level of consumer usage since 1995-99, he says. Part of the reason overdraft revenues have risen is because banks and credit unions are raising what they cost, to about $30 this year from about $28.