Overdraft Revenue Dropping at Large Banks
The findings from a CFPB report on overdraft fee revenue may impact the bureau's actions related to such programs at banks and credit unions. Learn why.
CFPB findings may impact agency actions on overdraft programs at banks and credit unions.
Overdraft fees at the nation’s largest banks are continuing to drop, the CFPB said, in a report issued last week.
Overdraft and Non-Sufficient Fund (NSF) revenue for the fourth quarter of 2022 was about $1.5 billion lower than in the fourth quarter of 2019—a decrease of 48% since before the pandemic.
“The sustained reductions we find in 2022 versus 2019 are likely due to changes in bank policies that started to go into effect toward the end of 2021 and throughout 2022,” the agency said.
Backstory and Context
In recent years, many banks and credit unions have eliminated overdraft and NSF fees.
The figures released last week do not include any banks with less than $1 billion in assets or any credit unions. Those financial institutions do not have to report their overdraft income to the CFPB.
Nonetheless, the statistics likely are politically significant, as bureau officials evaluate whether to issue a rule or guidance governing overdraft programs at financial institutions. The Biden Administration has included overdraft fees in the category of “junk fees” it is attempting to rein in.
Findings From 2021
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” CFPB Director Rohit Chopra said in December 2021. “We will be taking action to restore meaningful competition to this market.”
Those comments followed the release of CFPB research that found overdraft and NSF revenue totaled an estimated $15.47 billion in 2021.
Financial trade groups have long been urging the agency to approach the issue with caution.
“Restrictions on overdraft [programs] may lead financial institutions to stop offering these services to their customers, which would result in significantly more returned checks and declined transactions,” several trade groups—including CUNA, NAFCU and the American Bankers Association—wrote in a letter to Chopra following the release of that 2021 report.
Inside the New Report
Last week’s findings show that a great deal has changed across the past year, with the CFPB reporting that:
–Some banks continue to charge overdraft fees as high as $37.
–Evidence continued to mount that the large financial institutions are not increasing other fees to offset the revenue lost from overdraft fees. “There is no clear correlation between decreases in overdraft/NSF and increases in other listed fee revenue,” the report stated.
–Bank of America experienced a significant drop in overdraft income—91%. The drop most likely was the result of the bank reducing its overdraft fee to $10, the elimination of overdraft fees on ATM withdrawals, and the elimination of NSF fees, among other changes.
–Capital One and Citibank eliminated overdraft fees and NSF fees entirely.
What Comes Next?
Despite these findings, CFPB officials said they are continuing to study the issue and still could issue a rule or guidance governing the programs.
“We will continue to track overdraft/NSF fees and are considering rulemaking activities related to these fees,” the agency explained in the report. “We will also continue to follow other listed fees to discern to what extent these fees might create barriers to account access.”