The three largest retail banks in America saw a 25% decrease in overdraft income last year as a result of new methods that consumers might avoid the penalties that the corporations developed in response to regulator pressure to curb the costs.
According to regulatory filings, JPMorgan Chase, Wells Fargo, and Bank of America recorded a total of $2.2 billion in overdraft fees in 2023—roughly $700 million less than the year before.
When a consumer tries to spend more than the amount in their checking account, overdraft penalties are incurred. According to the Consumer Financial Protection Bureau, fees have been a profitable income stream for the banking sector since 2000, with many banks charging roughly $35 each transaction. Since then, the industry has made $280 billion in revenue.
With the CFPB’s suggestion last month to cap fees at $3 per transaction, the industry is bracing itself for an overdraft struggle. While others, including President Biden, claim that overdraft fees exploit low-income Americans, banks argue that their services are a lifeline that helps consumers avoid harsher choices like payday loans.
Big banks have received unwanted attention as a result of the practice. Sen. Elizabeth Warren pressed JPMorgan CEO Jamie Dimon on the fees at a hearing in 2021. At the time, Dimon turned down her request to give consumers a $1.5 billion refund.
However, banks’ earnings from overdrafts have been declining even prior to the new regulatory actions. Beginning in 2020, Americans were assisted by pandemic stimulus money to initiate less fees; thereafter, companies like as Ally, Capital One, and Citigroup voluntarily discontinued the practice.
Those that retained the fees, such as JPMorgan, restricted the kinds of transactions that qualified for penalties, eliminated costs for returned checks, and added one-day grace periods and $50 cushions to lessen the frequency of such transactions.
In 2022, Bank of America reduced the costs from $35 to $10.
According to Jennifer Tescher, CEO of the charity Financial Health Network, “there’s been very significant shifts here, whether folks eliminated some fees or dramatically reduced the cost of others.” In addition to eliminating overdraft fees, banks are looking for more convenient solutions to satisfy their liquidity requirements without going overboard.
steady decrease
In 2022, industry-wide overdraft income reached $7.7 billion, which was 35% less than the 2019 amount, as per a May CFPB study that included all U.S. banks with assets of at least $1 billion.
The trend persisted last year, according to recent regulatory reports, even though JPMorgan and Wells Fargo are still by far the biggest overdraft players.
Last year, JPMorgan’s overdraft revenue of $1.1 billion was about 12% less than that of 2022. The value of Wells Fargo dropped by 27% to $937 million. At $140 million, Bank of America reported a 64% decrease.
According to a JPMorgan representative who talked with CNBC, over 70% of overdraft transactions are now free of costs, and users may choose accounts that don’t apply penalties. Bank of America and Wells Fargo refused to comment.
The JPMorgan representative said, “Our customers continue to tell us they want and need access to overdraft protection, which helps them when they are temporarily short on money.”
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