More Banks Ditching Lucrative Overdraft Fees

Despite bringing in an estimated $15.47 billion in 2019, more banks in the U.S. are ditching or modifying overdraft fees in a move to better compete with zero-fee FinTechs, placate politicians and make customers happy, according to the most recent data from the Consumer Financial Protection Bureau (CFPB).

Capital One dropped overdraft fees even though the biggest retail bank in the U.S. will lose roughly $150 million a year, about 0.5 percent of its 2020 income, according to a report in the Financial Times on Tuesday (Jan. 4).

Banks and FinTechs that have revamped their overdraft policies are acquiring new customers at twice the rate of those that have not, according to the research firm Curinos. Head of Banking at Citizens Financial Brendan Coughlin told FT that having a more “forgiving” fee structure has been a good economic trade-off.

See also: As CFPB Blasts Unfair Overdraft Fees, Capital One Says It’s Eliminating Them

J.P. Morgan Chase, Wells Fargo and Bank of America accounted for 44 percent of the total overdraft fees in 2019, according to CFPB data, and 80 percent of those fees were paid by less than 9% of customers.

The country’s largest bank, J.P. Morgan Chase, didn’t drop overdraft fees altogether but announced changes to its policies last month. Most banks stopped short of eliminating the fees 100 percent, and supporters have pointed to the rationale that financial institutions should get some kind of compensation for providing an unsecured loan.

The CFPB’s new director Rohit Chopra, along with U.S. Senate Banking Committee and Sen. Elizabeth Warren (D-Massachusetts), have both urged banks to reduce or eliminate fees and refund customers who were charged excessively.

Read more: Chase Bank Expands Overdraft Protection Options

Warren, along with Sen. Cory Booker (D-New Jersey), reintroduced a bill called the Stop Overdraft Profiteering Act of 2021, which would prohibit overdraft fees on debit card transactions and ATM withdrawals, among other measures.

David Silberman, senior advisor at the Center for Responsible Lending, told FT that pressure from Capitol Hill is necessary to ensure change because it’s highly unlikely the market will “fundamentally change” on its own.