WASHINGTON–Attention to overdraft fees continues to grow, including during a Senate hearing when one senator pressed regulators on the issue and had questions about the systemic risk posed by three banks that derive 100% of their net income from the fees.
“Overdraft fees have become big business,” said Sen. Chris Van Hollen (D-MD) during a Senate Banking Committee hearing at which NCUA Chairman Todd Harper was among the witnesses. “Now, consumers may have no idea they have overdrawn on their account. Under the OCC’s jurisdiction, there are three financial Institutions that make 100% of their profit on overdraft fees. Is a bank that makes 100% of its profits from these fees a bank that is a safe and sound financial institution?”
OCC Acting Director Michael Hsu responded by saying that type of concentration risk is a “supervisory concern” and that his agency takes a “very close look” at the issue as part of its reviews.
Van Hollen, citing a report from the Brookings Institution, said there are three banks that make drive 100% of their net income from overdrafts: First National Bank of Texas (doing business as First Convenience Bank), Academy Bank, and Woodforest National Bank.
‘Raises Red Flags’
“Is a bank that is relying entirely on overdraft fees to remain a going concern” a problem? asked Van Hollen.
Hsu responded by saying it “raises a lot of red flags.”
Woodforest National Bank is based in Van Hollen’s home state of Maryland, where all of its branches are inside Walmarts.
“These people are paying a huge amount of money by not knowing they have exceeded their balances and seems to me if a bank is relying on overdraft fees for 100% of their profits, that is a huge area of concern,” said Van Hollen. “By definition, it seems to not be safe and sound. What is in your toolbox now to prevent this kind of problem?”
Hsu said the OCC is looking “very closely” at the issue of overdraft fees and suggested some supervisory action has already been taken or will be taken.