The CFPB recently released additional overdraft data that financial institutions continue to rely on overdraft and non-sufficient funds (NSF) fees as part of their revenue stream. Specifically, researchers estimated in the Overdraft/NSF Fee Reliance Since 2021 – Evidence from Bank Call Reports that the overall market revenue from overdraft and NSF fees was $15.47 billion in 2019 and that these overdraft and NSF fees made up close to two-thirds of reported fee revenue. Another report, Checking Account Overdraft at Financial Institutions Served by Core Processors, looked at the overdraft policies and practices at smaller financial institutions to report that 92.9% of smaller banks and 60.9% of credit unions had an overdraft program, making such programs less common at these institutions than among large banks and while overdraft and NSF fees were 13 to 19% lower at small banks and credit unions than at large banks, credit unions and small banks with an overdraft program earned $42.33 and $40.37 in annual overdraft revenue per account, respectively, which was just 6% and 11% less than large banks, respectively.
This stability of overdrafts and NSF fees has again spurred a conversation regarding reform of overdraft programs. The Acting Comptroller of the Currency Michael J. Hsu released a statement earlier this month addressing the inequality of these programs and how those customers that are the most financially vulnerable are the most impacted. Hsu states that in order to reform financial institutions’ overdraft programs, the goal to strive for if financial health, or customer’s ability to spend, save, and borrow so that they are empowered rather than hindered. Many larger institutions have taken strides to reform their own overdraft program by offering Bank On accounts. Bank On’s National Account Standards set a baseline standard for safe, affordable, and appropriate accounts that meet the needs of low-income consumers, particularly those outside of the financial mainstream. Additionally, Hsu’s statement identified features of overdraft programs that could be modified to support the goal of financial health. These features include:
- Requiring consumer opt-in to the overdraft program.
- Providing a grace period before charging an overdraft fee.
- Allowing negative balances without triggering an overdraft fee.
- Offering consumers balance-related alerts.
- Providing consumers with access to real-time balance information.
- Linking a consumer’s checking account to another account for overdraft protection.
- Collecting overdraft or NSF fees from a consumer’s next deposit only after other items have been posted or cleared.
- Mot charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.
These federal agencies continue to have overdraft and NSF fees as part of their regulatory conversation, and the CFPB stated that they will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees.