CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees

Overdraft and Non-Sufficient Fund Penalties Made up Two-Thirds of Reported Fee Revenue

Banks continue to rely heavily on overdraft and non-sufficient funds (NSF) revenue, which reached an estimated $15.47 billion in 2019, according to research released yesterday by the Consumer Financial Protection Bureau. Three banks—JPMorgan Chase, Wells Fargo, and Bank of America—brought in 44% of the total reported that year by banks with assets over $1 billion.  

The CFPB also found that while small institutions with overdraft programs charged lower fees on average, consumer outcomes were similar to those found at larger banks. The research also notes that, despite a drop in fees collected, many of the fee-harvesting practices persisted during the COVID-19 pandemic.

“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”

Previous CFPB research has shown that overdraft presents serious risks to consumers, with under 9% of consumer accounts paying 10 or more overdrafts per year, accounting for close to 80% of all overdraft revenue. On Tuesday, the Federal Deposit Insurance Corporation released data revealing that insured banks earned $69.5 billion in the third quarter of 2021, up 36% from the prior year. Banks are on pace to surpass their pre-pandemic profitability.

The first data point, Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports, shows that banks’ revenues from overdraft and NSF fees have been stable, especially before the COVID-19 pandemic. Read the CFPB data point, Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports.

The second data point, Checking Account Overdraft at Financial Institutions Served by Core Processors, provides the most detailed and wide-ranging quantitative data the Bureau or others have collected on overdraft policies, practices, and outcomes at small financial institutions. Read the CFPB data point, Checking Account Overdraft at Financial Institutions Served by Core Processors.

The CFPB said it will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees. In recent years, the CFPB ordered TD Bank to pay $122 million in penalties and customer restitution, and ordered TCF Bank to pay $30 million in penalties and restitution.