The three largest U.S. banks collectively hauled in $1.14 billion from overdraft fees, including related service charges, during the first quarter of 2015 — despite federal rules enacted five years ago to protect consumers from penalties on debit card purchases.
JPMorgan Chase, Bank of America and Wells Fargo Bank each reported more than $350 million in overdraft fees, according to the quarterly analysis by SNL Financial.
Starting in the first quarter, banks with more than $1 billion in assets were required to report overdraft fees charged to consumers on “transaction and nontransaction deposit products” intended primarily for individuals. Those include debit card transactions tied to checking accounts. In total, approximately 600 banks filed the new overdraft data in the first quarter, and collectively these companies took in $2.51 billion in overdraft fees, SNL found.
“However, even though the dollar amounts loomed large for the three largest banks, the values were a relatively small portion of the companies’ overall noninterest income. All three of the larger banks generated less than 6 percent of noninterest income through overdraft fees,” SNL said.
This in stark contrast to Woodforest National Bank, TD Bank and First National Bank Texas — all of which generated over 30 percent of noninterest income from overdraft fees.
Overdraft fees has been a point of contention for regulators acting on behalf of consumers. On April 28, the U.S. Consumer Financial Protection Bureau fined Regions $7.5 million for unlawful overdraft practices. The bank charged overdraft fees to consumers who had not opted in for overdraft coverage, as well as charging overdraft fees and nonsufficient funds fees on its deposit advance product — despite previously claiming that it would not. Regions is required to also pay $49 million in restitution.
Some Banks Don’t Clearly Explain Overdraft Options
A new report out this month by the Pew Charitable Trusts found that the biggest banks reviewed are improving their disclosures to let costumers know about the default option (or NOT opting in to overdraft protection) which avoids fees. The newest report found that 84 percent of 32 banks tracked over the past three years “clearly identify the overdraft default option or do not charge a debit overdraft fee.” That percentage has surged from 47 percent in 2013.
However, 29 percent of 45 banks studied by Pew this year did not clearly identify the “overdraft default option,” which prevents customers from getting dinged with overdraft fees.
Federal rules established five years ago require that checking account consumers “opt in” to overdraft coverage for debit card transactions at an ATM or point of sale. The “overdraft protection” actually triggers hefty overdraft fees, about $35 a hit. And by doing nothing, which amounts to accepting the overdraft default option, customers are not charged overdraft fees. Instead, their debit card purchases are denied at the point-of-sale if they don’t have sufficient funds.