Pedestrians walk past a JPMorgan Chase bank branch in New York.
Michael Nagle | Bloomberg | Getty Images
America’s three largest retail banks generated 25% less overdraft revenue last year as the companies created new ways for customers to avoid penalties under pressure from regulators to cap fees.
JPMorgan Chase, Wells Fargo And Bank of America reported overdraft fees totaling $2.2 billion in 2023, about $700 million less than the previous year, regulatory filings show.
Overdraft fees apply when a customer attempts to spend more than the balance in their checking account. According to the Consumer Financial Protection Bureau, fees are a lucrative line item for the industry at around $35 per transaction at many banks and have generated $280 billion in revenue since 2000.
The industry is bracing for a battle over overdrafts after the CFPB last month put forward a proposal to cap fees at just $3 per transaction. Banks say overdraft services are a lifeline that helps users avoid worse options like short-term loans, while critics, including President Biden, say the fees take advantage of struggling Americans.
The practice has brought unwelcome attention to the big banks. During a hearing in 2021, Senator Elizabeth Warren questioned JPMorgan CEO Jamie Dimon about the fees. At the time, Dimon rejected her call to refund customers $1.5 billion.
But even before regulators’ latest efforts, the size of banks’ overdrafts had been declining. Pandemic stimulus money helped Americans charge fewer fees starting in 2020, and then companies like Capital One, Citigroup and Ally voluntarily ended the practice.
Those that kept the fees, including JPMorgan, limited the types of transactions that trigger penalties, eliminated fees on cashed checks and introduced one-day grace periods and $50 cushions to reduce their frequency.
Bank of America reduced fees from $35 to $10 in 2022.
“Whether people have eliminated some fees or dramatically reduced costs for others, there have been very significant changes here,” said Jennifer Tescher, CEO of the nonprofit group Financial Health Network. “Not only are banks eliminating overdrafts, they are also trying to find more customer-friendly ways to meet their liquidity needs while ensuring they do not become overdrawn.”
Steady decline
Industry-wide overdraft revenue was $7.7 billion in 2022, down 35%, according to a May CFPB report that included all U.S. banks with at least $1 billion in assets 2019 level.
Recent regulatory filings show that trend continued last year, although JPMorgan and Wells Fargo remain by far the largest players in overdrafts.
JPMorgan reported $1.1 billion in overdraft revenue last year, down about 12% from 2022. Wells Fargo reported a 27% decline to $937 million. Bank of America posted a 64% decline to $140 million.
More than 70% of overdraft transactions no longer incur fees, and customers can choose accounts that don’t allow these penalties, a JPMorgan spokesperson told CNBC. Wells Fargo and Bank of America declined to comment.
“Our customers continue to tell us that they want and need access to overdraft protection to help them when they are temporarily short on cash,” the JPMorgan spokesperson said.
Source link
2024-02-09 16:02:06
www.cnbc.com
