Big banks announce significant changes to overdraft services

Monday, January 31, 2022

A growing list of banks are reducing and ending overdraft fees.

During the height of the pandemic in 2020, consumers were charged $12.4 billion in overdraft fees by U.S. banks. Now, however, consumers are starting to see the benefit of banks and FinTech apps (including virtual wallet services) competing for checking account market share. Over the last eight months, multiple banks have announced changes to their overdraft and non-sufficient funds (NSF) fees. Ally Bank announced an end to checking account overdraft fees, while Capital One announced an end to NSF and overdraft fees. Bank of America announced it will eliminate NSF fees and reduce its overdraft fees from $35 to $10 beginning in May. PNC Bank introduced its Low Cash Mode service, which allows its Virtual Wallet customers to avoid overdraft fees through real-time phone alerts and a 24-hour grace period.

Regions Bank and Wells Fargo will eliminate both non-sufficient funds fees and linked-account transfer fees triggered by overdrafts. The banks also intend to provide early access to direct deposits and both will offer small-dollar lines of credit up to $500. Bank of America also announced its offering of small-dollar loans to checking account customers in increments of $100 (up to $500).

A 2021 Consumer Financial Protection Bureau (CFPB) report showed banks made an estimated $15.47 billion in non-sufficient funds revenue in 2019. Three banks—JPMorgan Chase, Wells Fargo and Bank of America—accounted for 44% of that revenue. NSF fees are often used by low-income consumers as a high-cost form of credit that can cost more than triple-digit payday loans. NSF and overdraft fees are two big reasons vulnerable consumers have been getting out of the banking system entirely. A 2017 CFPB report showed that the 9% of consumer accounts that pay 10 or more overdrafts per year make up a staggering 79% of all overdraft revenue. These customers tend to have low end-of-day balances, low or moderate credit scores, and low or moderate monthly deposits. The bottom line: Financially vulnerable consumers have been hit the hardest by excessive and unnecessary banking fees.

Here is a breakdown of the updated overdraft service policies by bank:

Ally Bank: Eliminated all checking account overdraft fees for customers as of June 2021.

Bank of America: Announced it will end its $35 NSF fees in February, will drop overdraft fees to $10 from $35 in May, and plans to eliminate the transfer fee associated with its Balance Connect product for overdraft protection service in May. Its Balance Assist product allows customers who have had a checking account for at least a year to borrow up to $500 (in increments of $100) for a $5 flat fee, regardless of the amount borrowed.

Capital One: All overdraft fees and non-sufficient funds fees were eliminated starting in December 2021.

PNC Bank: Launched its Low Cash Mode service last summer for Virtual Wallet customers. The service alerts customers in real-time when their balance is low or negative. Customers can then decide to process the payment or decline the payment they’re attempting to make. The service also waits 24 hours to process overdraft fees after a payment is made on a negative account, giving the customer time to deposit or transfer funds and avoid the overdraft fee.

Regions Bank: By the end of March, Regions will eliminate fees to transfer money from linked accounts to cover overdrafts and plans to eliminate NSF fees by the end of June. Starting in September, Regions plans to make customers’ paychecks available up to two days before their regular payday if their employer uses direct deposit. Customers will be able to access up to $500 to cover short-term needs through a new, low-cost line of credit.

Wells Fargo: By the end of March, Wells Fargo will eliminate transfer fees for customers enrolled in Overdraft Protection; NSF fees will be eliminated; the bank will provide early access to direct deposits; and a 24-hour grace period will be extended to customers who overdraw their checking account before they incur an overdraft fee. By the end of the year, Wells Fargo will offer short-term loans of up to $500.

 

If you have an unresolved problem with your bank about overdraft services and fees, alert the CFPB by submitting a complaint on its website [https://www.consumerfinance.gov/complaint/