By Chris Matthews
The nation’s largest banks take in billions each year in overdraft charges, and the Consumer Financial Protection Bureau says the prevalence of what can be hefty fees are evidence of a broken market.
“When it comes to bank accounts in the U.S., we don’t have a fair and competitive market,” CFPB Director Rohit Chopra said during a call with reporters Wednesday, following the release of a new report on overdraft fees.
“Rather than earning interest many American families end up paying large banks for the privilege of holding their money,” he added. “The main way banks have flipped the script from paying depositors to charging them is through deposit account service charges like overdraft fees.”
The CFPB report said that banks charged U.S. customers $15.47 billion in overdraft and non-sufficient funds fees in 2019, the most recent data available. Three banks — JPMorgan Chase /zigman2/quotes/205971034/composite JPM -4.19% , Wells Fargo /zigman2/quotes/203790192/composite WFC -2.36% and Bank of America /zigman2/quotes/200894270/composite BAC -3.44% — accounted for 44% reported that year by banks with more than $1 billion in assets, the agency said.
Spokespersons for JPMorgan Chase and Wells Fargo told MarketWatch that their banks provide services to help customers avoid overdraft fees. Wells Fargo said it offers accounts with no overdraft fees, while a JPMorgan spokesperson told MarketWatch that the CFPB’s data does not reflect changes it made earlier this year to eliminate non-sufficient funds fees and to “significantly” increase “the amount a customer can overdraw before overdraft fees are charged.”
Kevin Fromer, CEO of the big-bank industry group Financial Services forum said in a statement that “The nation’s largest banks have led the way in offering low-cost checking accounts with no overdraft fees and ensuring banking services are transparent, accessible and understandable.”
Though overdraft charges don’t represent a massive share of overall bank revenue — a recent Motley Fool analysis estimated they account for about 5% of large-bank sales — they can be extremely burdensome for customers. Previous research from the CFPB showed that 9% of bank account holders have more than 10 overdrafts annually and pay nearly 80% of overdraft fees.
Chopra said that bank overdraft fees are a relic of a time when consumers relied on paper checks to pay their bills through the mail, and that decades ago bank regulators allowed banks to charge overdraft fees as a means of not inconveniencing consumers who put their checks in the mail too early.
“But over the years, with the advance of debit cards, these overdraft fees became big money makers,” Chopra said. “They became reliable, bread and butter sources of revenue for many retail banks.”
The regulator added that modern technology should make it simple for banks to simply reject attempted purchases when funds aren’t available, and that in a healthy, competitive market, overdraft fees would be far lower than the average $34 per violation charged today.
Chopra promised to take action against banks that violate the law and that CFPB examiners will prioritize the examinations of banks rely heavily on overdraft fees.
“Despite the findings in our research that banks are still dependent on overdraft, we know that banks understand they need to kick this addiction,” Chopra said.
Last year, the CFPB settled with TD Bank /zigman2/quotes/202133558/composite TD +1.08% , ordering it to pay restitution and civil penalties of more than $100 million for engaging in deceptive practices with regards to overdraft fees. TD Bank settled without admitting or denying the accusations.
Capital One Financial Corp. /zigman2/quotes/204480509/composite COF -2.17% , the nation’s sixth largest retail bank, announced Wednesday that it will “completely eliminate all overdraft fees and non-sufficient fund fees for its consumer banking customers” and provide free overdraft protection.