Bureau takes new aim at overdraft fees, vowing to restore ‘meaningful competition’

(Dec. 3, 2021) Action to “restore meaningful competition” to the overdraft fee market was vowed this week by the CFPB, which noted that both small and large financial institutions “heavily rely” on the fees for revenue.

No details of what that action would be, however, were cited by the agency. However, the agency’s press release stated that 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, perhaps as an indication of what the bureau has in mind.

Bureau Director Rohit Chopra criticized financial institutions for their reliance on the fees. “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” he said.

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 in fees at the institutions.

“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.”

Additionally, the agency said, its research shows 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.

“Reliance on such fees varied considerably among institutions in the Call Reports, but was generally stable over time for any given institution,” the bureau said. “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.”


CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees