NEW YORK–Overdraft fees plummeted 49% during the second quarter as economic shutdowns due to the COVID-19 pandemic sapped consumer spending, according to new analysis from S&P Global Market Intelligence.
S&P reported its analysis found maintenance charges and ATM fees also declined by double digits on a linked-quarter basis, making for a steep decline in service charges and fees.
All told, S&P Global said, the banking industry booked $2.60 billion in service charges, a $1.58 billion decline from the previous quarter and an even larger drop from the year-ago period.
“Banks pointed to government relief efforts, which included stimulus payments, and reduced economic activity as the main drivers for the decline in overdrafts and other service charges,” S&P Global said in releasing its findings. “Many banks also announced waivers of service charges to help customers handle the pandemic-induced recession.”
S&P Global noted First Interstate BancSystem President and CEO Kevin Riley highlighted a unique cause during the bank's earnings call: casinos. He said communities with gambling establishments have reported essentially zero overdrafts, which could be attributed to the closing of casinos, the organization said.
"I think what happens as some of these things open up, people go back to their normal spending habits, and some of those fees would start coming back," Riley said, according to the transcript cited by S&P Global. "But they pretty much said they had no overdrafts in the whole market due [to] the fact that all the casinos were shut down."
S&P Global reported bankers have indicated they expect service charges to rebound in the third quarter as parts of the economy reopen and banks start to sunset fee waivers.
One Forecast
At the same time, the fee line item is expected to stay below long-term trends. Especially as the number of COVID-19 cases has started to rise again in some locales, service charges should be down year over year through the rest of the year, Peter Winter, an analyst for Wedbush Securities, told S&P Global.
"In general, I think deposit service charge fees are going to improve but stay depressed," Winter was quoted as saying. "You're seeing states slow down the reopenings, so that also is contributing. Our view is that service charges on deposit will stay weak throughout this year but should improve from the second quarter."
S&P Global added, “Overdraft fees have also been a hot-button issue for regulators and policymakers. The Center for Responsible Lending in June called on Congress to prohibit the collection of overdraft fees throughout the COVID-19 pandemic, arguing that the impact of the fees is more severe as depositors lose jobs. The Consumer Financial Protection Bureau on Aug. 20 levied a $25 million civil money penalty on TD Bank NA over the bank's marketing and sale of overdrafts. The consent order, which alleged the bank failed to obtain affirmative consent from customers, also called for $97 million in restitution.
The Banks Most Dependent on ODs
S&P Global said its research has found TD Bank reported the highest concentration of service charges as a portion of revenue among banks with at least $50 billion in total assets, booking $779.7 million in service charges, or 9.3% of operating revenue, over the last 12 months. Some smaller banks derive even more of their revenue from service charges, S&P Global said, pointing to Woodforest National Bank, which derived 31.9% of its operating revenue from service charges, the only double-digit concentration among the top 20 banks by deposit fees collected over the last year.
"COVID aside, service charges are a flat-at-best revenue source for the banks," said Christopher McGratty, an analyst for Keefe Bruyette & Woods told S&P Global. "There's been a ton of regulation that has hit the industry over the past 10 years that has made it more challenging for the banks to recognize revenues and better for the consumer. Looking over the next couple years, keeping service charges flat is, I think, a win, but I think we're going to be off a little ways."