LAKE BLUFF, Ill. (9/16/10)--Overdraft fee revenue for financial institutions bottomed out during the first half of the year but is recovering, according to a new study. By the end of the year, the banking industry expects to earn $35.4 billion in overdraft fee revenue. That figure is down from the $37.1 billion financial institutions received in 2009, but it is on par with the fees collected during 2008, according to Moebs $ervices, a firm that tracks pricing in financial institutions. The Lake Bluff, Ill.-area firm analyzed fee revenue for the first six months of 2010 at 2,284 financial institutions and more than 15,000 depositories. With the regulation requiring opt-in for debit cards and ATMs coming during the third quarter, revenue likely will drop again, the study predicted. "But this will recover by the same amount in the fourth quarter," said Michael Moebs, economist and CEO of the firm. He estimated that overdraft revenue will increase next year to $38 billion--"the highest ever for the industry." Roughly $2 billion in revenue from overdraft fees was lost during fourth quarter 2009 when financial institutions started to implement their own floors and ceilings on overdrafts in response to congressional and consumer complaints, said the study. The institutions lost another $2.3 billion during first quarter 2010 after the opt-in regulation was introduced by the Federal Reserve and depositories made changes. It cost banks and credit unions about $2 billion in operational costs and training to implement the opt-in regulation and their own changes to overdraft services. "When you add the lost revenue and the additional cost of the new overdraft regulations, it amounts to about $6.3 billion erosion into profitability for all banks and credit unions," Moebs said. He noted that 44.3% of banks and credit unions made some type of change to their overdraft program while 55.7% made no changes. About 20.5% increased prices to offset cost increases and loss of revenue. Some--6.5%--decreased their overdraft price, said the study. "We've never seen this many institutions decrease the price of a fee service in almost 30 years of tracking bank and credit union pricing," Moebs said. He added that the data show institutions that decreased the fees "actually maintained or increased their overall revenue in the past year." The decline in industry overdraft fees due to large institutions such as Bank of America and Citibank exiting the overdraft business was more than offset by Main Street institutions that offered overdraft protection for the first time, the study said. "Institutions that got into overdrafts, are doing so to build capital by increasing fee revenue, because interest rates are so low," Moebs said. About 90% of overdraft revenue comes from frequent users, those with 10 or more overdrafts a year. Frequent users almost all opted in for overdraft coverage. For all consumers, opt-in consent varied between 60% and 80% with a median of 75%. The median overdraft price rose to $28 per check in 2010 from $26 in 2009. Nonsufficient funds, where the institution returns the check, rose to $27 per check from $25 in 2009. "Even with the price of overdraft protection going up, it appears from the opt-in numbers that the American consumer is saying they want and need overdrafts," Moebs concluded.