America’s three biggest consumer banks saw their overdraft fee revenues fall 25% in 2023.
J.P. Morgan Chase, Bank of America and Wells Fargo collected $2.2 billion in total in those fees last year, a recent CNBC report said, citing data from the Federal Financial Institutions Examination Council (FFIEC). That figure is around $700 million less than in the year before.
This is happening at a time when the White House is calling for a limit on bank overdraft fees. Last month, the U.S. Consumer Financial Protection Bureau (CFPB) issued a proposal that would put an end to an “outdated loophole” that exempts overdraft lending services from consumer protection laws.
The CFPB proposal would cap fees at $3, a move the agency says would save consumers $3.5 billion each year. The rule would apply to banks with more than $10 billion in assets, a group that covers the 175 largest financial institutions in the U.S..
These larger banks would still be able to extend overdraft loans — a practice the CFPB says generates billions in revenue each year — if they comply with longstanding lending laws, including disclosing applicable interest rates.
The alternative, the CFPB said, is that banks could levy a fee to recover their costs “at an established benchmark” as low as $3, or at a cost the banks calculate if they can illustrate their cost data.
“For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said in a statement about the proposed rule change. “Banks call it a service — I call it exploitation.”
A report by PYMNTS last month argued that the issue may be more complicated than a question of exploitation.
For example, PYMNTS Intelligence data that shows overdrafts are commonplace: 69% of high-income consumers — those making more than $100,000 per year — overdrew their accounts and paid fees. The same held true for lower-income consumers — those earning less than $50,000 annually — with 54% of this group overdrawing their accounts.
“As to the nuances in the debate: Overdraft fees are an opt-in choice for consumers,” PYMNS wrote. “As detailed by the American Bankers Association, 83% of consumers say their banks are transparent about disclosing fees and 89% say that bank overdraft offerings are ‘valuable.’ Many banks have retooled their approach to overdrafts (if they have not eliminated them, as many firms have).”