That the practice happened to produce lots of fees was only “incidental.”
By Steve Cocheo Executive Editor at The Financial Brand
Overdraft Fees: Will Big Banks Ditch Them for Good?
On the other hand, the argument has often been made that you shouldn’t spend more than you have in your checking account. But widespread talk these days about many people being paid too little to make it on their salaries over the course of a month have pushed that kind of talk to the side. Ironically, fees collected during 2020 were down, due both to waivers and less spending, triggering fewer overdrafts (figure 1).
Despite the senatorial spanking given megabanks over the billions in overdraft fees they collect, there's been more movement among regional banks to address the issue. The big question is whether now is the moment to look like 'good guys' before Washington imposes strict rules. New technology makes such changes more practical.
Was this the first line of an obituary?
Figure 1
“Ally Bank, the largest digital bank in the U.S…., eliminated overdraft fees on all accounts today. Every Ally Bank customer is eligible, and there are no requirements or restrictions.” Some think that overdraft fees — and traditional overdraft policies — are dying, and good riddance. Ally’s announcement came in the wake of Senate Banking Committee hearings in which Sen. Elizabeth Warren roasted major banks over their pandemic period overdraft charges. Warren, whose longstanding opposition to overdraft fees is no secret, asked JPMorgan Chase’s Jamie Dimon if he would refund $1.463 billion in pandemic-era overdraft charges. Dimon said “No.” Split Opinion: The truth about the banking industry is, while some bankers have loved the idea of overdraft fees, it’s never quite sat right with others. Many bankers recoiled from the idea of reordering debit items by amount versus date of arrival so large checks like mortgage payments would be paid first — but potentially triggering multiple overdraft charges when smaller items hit the account. Others, with straight faces, spoke of the importance of covering such important payments.
Overdrafts versus other consumer deposit fees at banks and thrifts
Based chiefly on instituitions with $1 billion or more in assets.
Overdraft-related service charges ($B) Maintenance service charges ($B) ATM fees ($B) Proportion of operating revenue (%)
($B)
(%)
5
3.0
4
2.4
3
1.8
2
1.2
1
0.6
0
0.0
Q1 Q2 Q3 2018
2019 2020 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
SOURCE: S&P Global Market Intelligence © June 2021 The Financial Brand
What seems to be changing now is that attitudes about overdrafts are becoming more strident at the same time that technology makes it possible to change the way overdrafts are handled . PNC’s new Low Cash Mode, for example—covered later—puts nearly every decision regarding a potential overdraft literally in customers’ hands, through the bank’s Virtual Wallet app.
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THE FINANCIAL BRAND INSIGHTS FALL 2021
THE FINANCIAL BRAND INSIGHTS FALL 2021
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