CFPB: Overdraft Fee Revenue Dropping at Banks Even Without Rule
Report likely to influence credit union trade groups in ongoing discussion over fees.
Revenue from bank overdraft fees has been dropping even without the CFPB issuing a rule governing such charges, the agency revealed this week.
Overdraft fee revenue was 43% lower in the third quarter of 2022 than in the third quarter of 2019—suggesting $5.1 billion less in charges on an annualized basis, the CFPB said in a new report.
Potential Impact on Credit Unions
The report does not include credit unions, but it is likely to be used by credit union trade groups and others as the debate surrounding overdraft fees continues.
The Biden Administration has made it clear it wants to eliminate so-called “junk fees.” So far, the CFPB has proposed limiting credit card late fees to $8, but in his State of the Union address this week, President Biden specifically mentioned overdraft fees as a target of the campaign.
Anticipating regulations, many banks and credit unions have been lowering or eliminating their overdraft fees. Credit union groups have argued that members opt into overdraft programs and that some members use the programs for emergency needs.
Those members, they say, would otherwise be forced to seek loans from other sources—most notably payday lenders who charge exorbitant interest rates and fees.
Inside the Report
In its report, CFPB officials were non-committal about their intentions.
“We will continue to track overdraft/NSF fees, and we are considering rulemaking activities related to these fees,” they said. “We will also continue to follow other listed account fees to discern to what extent these fees might create barriers to account access.”
The report showed that income from overdraft fees was 33% lower over the first three quarters of 2022 compared to the same time period in 2019.
Further, the agency noted that revenue from insufficient fund and overdraft fees was lower in 2020 and early 2022, but said that most likely was due to pandemic-related economic stimulus payments being deposited in checking accounts.
Financial services trade groups have warned that if overdraft fees were limited or eliminated, credit unions and banks would be forced to increase other checking account fees.
That has not occurred even as the banks lost income from lowered overdraft fees, the CFPB said. “We have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts,” the report stated.