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What's Your Bank's Overdraft Policy?
Many banks are reducing or eliminating overdraft fees in changing financial landscape
A new report from Pew details how changes in the banking landscape have resulted in a dramatic reduction in overdraft fees charged by some of the nation’s largest banks.
The 25 largest U.S. banks by branch count have made substantial changes to their overdraft policies in the past 12 months that could save consumers more than $4 billion annually.
I’ve reported on these changes at a number of banks — an effort to compete with emerging neobanks and fintech companies offering alternative banking products.
The move also comes as the Consumer Financial Protection Bureau (CFPB) has increased its focus on “junk fees” charged to consumers in the financial marketplace.
The CFPB report noted:
In 2019, bank revenue from overdraft and non-sufficient funds (NSF) fees surpassed $15 billion
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”
The Pew report noted the scale of overdraft fee reform taking place:
Most of these 25 large banks have lowered the penalty fee for overdrafting, reduced the daily maximum number of overdraft fees charged, added a grace period or buffer amount before fees are charged, or eliminated nonsufficient funds (NSF) fees or overdraft transfer fees. Some took these steps in 2021, while five did so in quick succession in January. More banks have since followed suit.
While there is certainly positive movement on the overdraft fee front, Regions Bank was recently ordered to pay $200 million in what the CFPB called a “surprise” overdraft fee scheme.
The Consumer Financial Protection Bureau (CFPB) has ordered Regions Bank to pay $191 million in refunds and penalties as a result of an illegal surprise overdraft fee scheme it foisted on customers.
“Regions Bank raked in tens of millions of dollars in surprise overdraft fees every year, even after its own staff warned that the bank’s practices were illegal,” said CFPB Director Rohit Chopra. “Too often, large financial firms make a calculation that continuing to break the law is more profitable than following it. We have more work to do to change this mentality.”
Still, the reform at the nation’s largest banks is encouraging and will likely result in other banks following suit in order to be competitive in the market.