NEW YORK–The “myth” of free checking is costing consumers $8 billion annually, according to a new report that found despite the headlines, NSF fees are making a comeback.
It’s a problem that has led to more than 50,000 Americans to file comments with the Consumer Financial Protection Bureau.
“For some, the overdraft fee—a thirty-something dollar charge every time someone spends more than they have in their checking account—is nothing more than a pesky inconvenience,” reported Bloomberg. “But with the U.S. teetering on the edge of a recession, the fee can mean the difference between putting food on the table and spiraling into distress for millions of Americans…”
Bloomberg’s analysis noted that customers who typically have no more than a few hundred dollars in their checking accounts are responsible for over half the profits from mass market consumer checking accounts at the country’s biggest banks.
Bankers Respond
In response to the report, Lindsey Johnson of the Consumer Bankers Association told Bloomberg lenders “have taken meaningful steps to lower costs, strengthen transparency, and protect access to an emergency safety net.”
“Recent moves from Washington to Wall Street give reason to think overdraft is finally about to disappear,” Bloomberg stated. “Yet lenders, especially the thousands of banks around the country too small to be in the CFPB’s purview, are not giving it up without a fight. Some major banks are simply devising replacements for overdraft-related service charges, pushing customers into new kinds of accounts that often come with other fees.”
Better Than a High-Balance Customer
Overdraft fees and related programs have been pushed by consultants who have shown data that a customer who’s charged one non-sufficient-funds fee per month generates as much profitability for lenders as one maintaining a $12,000 average balance—and that was in a 2003 analysis, Bloomberg noted.
“Instead of making their normal efforts to collect on debts, banks were told to send letters thanking customers for overdrafting, even as they charged them for it,” the report stated.
As CUToday.info has reported, some of the nation’s largest banks and a handful of credit unions have announced fee reductions and the elimination of NSF fees. The Bloomberg report said new CFPB chief Rohit Chopra is also playing a role in driving fees down ahead of any federal regulations or laws.
Making a Comeback
But Bloomberg also cited a Morning Consult survey that found seven in 10 bank customers who overdrafted their accounts reported they are still being charged.
“There are already signs the fees are staging a comeback, according to Bloomberg.
According to the CFPB, in Q1 2022 revenues from overdraft and non-sufficient funds “stopped their decline and reversed somewhat,” ending about a fifth below pre-pandemic levels, the CFPB reported.
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