PHILADELPHIA–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, according to a new analysis by Pew Charitable Trusts.
“These reforms at the biggest banks should have outsized benefits for Black and Hispanic customers because they are more likely to incur overdraft fees,” Pew Charitable Trusts stated.
In releasing its analysis, Pew said the banks have taken the steps as federal regulatory pressure has been dialed up, while neo-banks and fintechs have been offering similar services with no overdraft fees.
“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,” reminding that five did so in quick succession in January.
‘Major Profit Center’
As CUToday.info has reported, more banks and credit unions have since followed suit.
“The banks originally created overdraft programs to help consumers cover small, incidental charges that occurred before an account holder’s next deposit because paper checks could be slow to clear, but the fees had become a major profit center for many depository institutions,” Pew stated. “Today, most overdrafts occur for debit card transactions and electronic payments. More than half of overdrafters surveyed by Pew in 2013 did not recall agreeing in advance to have debit card transactions go through in exchange for paying overdraft penalty fees. In addition, about 3 in 4 overdrafters said they were unaware of their right to have transactions declined free of charge if the account did not have sufficient funds to cover a debit purchase.”
Pew noted the CFPB has estimated that $15.5-billion in overdraft fees were paid in 2019, with the average NSF fee being $35.
Billions in Savings
After outlining some of the pricing changes around overdrafts that banks have put in place, Pew Charitable Trusts said in releasing its analysis, “The recent changes to banks’ overdraft programs are likely to produce consumer savings of more than $4 billion annually. Changes at the top three banks alone are expected to save consumers more than $2 billion every year in fees. CFPB research has found that those three banks accounted for 44% of all overdraft revenue in 2019, excluding credit unions and the smallest banks.