Bureau vows to act on overdraft fees with aim of restoring ‘meaningful competition’

Three of the nation’s largest banks brought in more than two of every five dollars charged in overdraft fees in 2019, while smaller financial institutions – which charged less on average – were also heavily reliant on the fee income, the consumer financial protection agency said Wednesday.

Considering those findings, according to the agency’s director, the Consumer Financial Protection Bureau (CFPB) will be “taking action to restore meaningful competition to this market.”

In a press release, the bureau reported on research it conducted that asserted banks continue to “rely heavily” on overdraft and non-sufficient funds (NSF) revenue. The bureau said the total revenue collected from those sources in 2019 was $15.47 billion – 44% of which came from customers for the banks JP Morgan Chase, Wells Fargo, and Bank of America. Overall, the bureau said, revenue from the fees made up nearly two out of every three dollars generated.

“The CFPB also found that while small institutions with overdraft programs charged lower fees on average, consumer outcomes were similar to those found at larger banks,” the bureau stated. “The research also notes that, despite a drop in fees collected, many of the fee harvesting practices persisted during the COVID-19 pandemic.”

CFPB Director Rohit Chopra criticized the banks at large for relying on the charges. “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” he stated.

The agency’s press release stated that the CFPB will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees. “In recent years, the CFPB ordered TD Bank to pay $122 million in penalties and customer restitution, and ordered TCF Bank to pay $30 million in penalties and restitution,” the press release recalled.

The research shows, the CFPB said, that aggregate overdraft and NSF fee revenues reported in call reports for banks with assets of more than $1 billion saw a small but steady annual increase of around 1.7% per year to $11.97 billion in 2019.

“Complementing the Call Report data with data on small institutions, CFPB researchers estimate that the overall market revenue from overdraft and NSF fees was $15.47 billion in 2019,” the bureau said.

The overdraft and NSF fees made up close to two-thirds of total fee revenue reported in 2019, the bureau said. That, it added, emphasizes “banks’ heavy reliance on such fees.”

“Reliance on such fees varied considerably among institutions in the Call Reports, but was generally stable over time for any given institution. While aggregate overdraft and NSF fee revenues declined by 26.2% in 2020, increased checking account balances resulting from federal stimulus payments likely contributed to this decline,” the bureau said.

CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees