U.S. overdraft fees jump at big banks amid regulatory, economic shifts

Fourteen of the largest U.S. retail banks posted jumps in the income they generated from overdraft and bounced-check fees during the first nine months of the year. (AP / Mark Lennihan)

WASHINGTON — Fourteen of the largest U.S. retail banks posted jumps in the income they generated from overdraft and bounced-check fees during the first nine months of the year, while two big banks reported sharp declines, according to a Reuters analysis.

The data reveals growing industry divergence on such fees at a time when broader economic and regulatory shifts make it more likely consumers will encounter them. It also highlights that some banks still rely on overdraft fees, despite industry promises to rein them in following political pressure during former Democratic President Joe Biden’s administration.

Reuters analyzed data on overdraft and “non-sufficient funds” (NSF) charges for the 20 largest U.S. retail banks that report collecting such fees to the Federal Financial Institutions Examination Council, a regulatory panel. The 20 banks represent roughly half of all deposits at insured U.S. banks.

Overdraft and NSF fee income for the group ticked up two per cent overall to US$2.99 billion.

The charges mostly relate to overdraft fees, since most banks have phased out NSF charges in recent years.

CFPB caps rescinded

The increase in fee income coincides with congressional Republicans’ move in May to scrap a Biden-era Consumer Financial Protection Bureau regulation that would have curtailed overdraft fees, which the CFPB estimated would havesaved depositors $5 billion a year.

The rule, which had been part of a Biden administration crackdown on “junk fees,” would have come into force in October and effectively capped fees at $5, down from the typical $35.

Amid Democratic political pressure, some large banks modified their policies to help customers avoid the charges or dropped them altogether, even before the CFPB tried to cap them. With Republicans taking control of Congress this year, the industry saw an opportunity to kill that rule, arguing that such “price controls” could deny credit to depositors in need.

Aaron Klein, senior fellow at the Brookings Institution who has studied overdraft policies, said economic factors likely influence fluctuations in such revenue, with consumers more prone to becoming overdrawn when times are tough. But the picture would have been different had the CFPB’s rule survived and banks geared up to comply with it, he said.

“When the watchdog was put to sleep, some institutions went back out on the prowl, and others have stayed kind of doing what they have been doing.”

CFPB 2017 research found that nearly 80 per cent of overdraft charges came from just nine per cent of accounts, which had only a few hundred dollars at any time. Consumer Bankers Association (CBA) CEO Lindsey Johnson said many consumers rely on overdrafts to make ends meet and that the industry had worked to lower the fees.

“What matters most is ensuring consumers continue to have access to these protections as studies show overdraft services are deeply valued,” she said.

Below historical norms

USAA Federal Savings Bank, which serves military personnel, reported the biggest year-on-year jump of 20 per cent. At $78 million, the fees accounted for more than a fifth of its net income over the nine-month period.

In a statement, USAA said overdrafts help customers meet short-term needs, and that its fees are lower than at most banks, but that it expected overdraft revenues to decline next year as the bank had recently raised the negative balance threshold for incurring a charge to $100 from $50.

Citizens Bank CFG.N posted the second biggest jump at 17 per cent with TD Bank TD.TO, which has a large U.S. retail presence, posting a 14 per cent increase. Such fee revenue was equal to 13 per cent of TD’s net income, the data shows. JPMorgan and Bank of America’s fees increased eight per cent and two per cent respectively.

TD referred questions to the CBA. A BofA spokesperson said its overdraft revenues had fallen 97 per cent since 2009 and that the bank offered customers ways to avoid incurring such charges.

The increases were offset by a 10 per cent fall at Wells Fargo WFC.N, while Truist’s fee income fell 22 per cent. Wells Fargo declined to comment.

Citizens and Wells Fargo declined to comment, while JPMorgan and Truist did not respond to requests for comment.

Citigroup and Ally Financial scrapped overdraft charges in 2022 and 2021, respectively. Both said they still offer overdraft services.

Despite the overall uptick, fees are well below historical norms. The whole industry in 2023 reported $6 billion in such fees, compared with $13 billion in 2019, according to CFPB data.

“The numbers right now are night-and-day different from what they used to be,” said Christopher McGratty, head of US bank research at KBW. “That’s consumer protection working.”

(Reporting by Douglas Gillison in Washington; Editing by Michelle Price and Nick Zieminski)