When you think of profitable banks, you probably thing of Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), and their brethren. When it comes to turning dollars into more dollars, however, the most profitable banks may be the small banks located within Wal-Mart. Turns out these banks have been racking in money through fees and other charges to Wal-Mart Stores, Inc. (NYSE:WMT) customers.

Wal-Mart

To be clear, the banks are not owned or affiliated with Wal-Mart Stores, Inc. (NYSE:WMT) but instead lease out space within the stores. Banks such as Woodforest are able to generate huge amounts of money collected in fees. These banks often serve customers that other banks have rejected, customers with low income and bad credit.

Predatory behavior or offering a valuable service?

Some of these banks are coming under fire for their practice of bringing in huge profits through banking fees, and especially overdraft fees. It turns out, however, that many customers have been using the banks as a sort of payday loan company, intentionally overdrawing their accounts and being charged the $30 dollar overdraft fee.

While this overdraft fee certainly isn’t cheap, it’s also less than what most payday loan companies will charge. Payday loans can easily charge $50 dollars or more to extend a loan of just a couple hundred dollars for a period as short as 14 days. So while the overdraft fees charged by banks such as Woodforest are not cheap, they are in-fact cheaper than a payday loan company.

For the individuals using these banks, the overdraft fees can actually offer a reprieve for people short on cash. If an individual suddenly has an emergency bill, such as needing money to repair a flat tire or pay for a prescription, these overdraft charges offer a great alternative to payday loans.

Of course, for a person struggling to get by, $30 dollars can be a pretty big chunk of change. Regardless, while it’d certainly be better for such poor individuals to not have to pay the overdraft fees or a payday loan at all, these banks do offer a viable and valuable alternative.

Wal-Mart and banks responding to pressure

Wal-Mart Stores, Inc. (NYSE:WMT) has emphasized that it vets each bank ensure that the services provider are in their customers’ interests. Of course, some people might disagree with that analysis given that the banks are generating huge returns off of the overdraft fees and other fees. In fact, these banks are generating some of the most money as a percentage of deposits out of any banks in the United States

The banks, however, have been defending their actions. While they do collect fees, these fees are largely in line with industry standards. Further, the banks intentionally do allow people to overdraw, often as much as $500 dollars, but the alternative for customers are payday loan companies, which charge even more.