The Consumer Financial Protection Bureau (CFPB) is out with a note that hammers traditional banks and their reliance on overdraft fees.
Frequently the target of neobanks and other Fintechs, the overdraft fee has been criticized as the $30 cup of coffee when someone inadvertently makes a small purchase and automatically gets hit with a ridiculous penalty by their bank. In October, it was reported that the average overdraft fee stood at $33.58 – a slight increase versus the year prior.
The CFPB has tallied the amount of overdraft fees assessed by banks and the total is astounding. Non-sufficient funds (NSF) revenue reached an estimated $15.47 billion in 2019, according to the CFPB.
The regulator states:
“Three banks; JPMorgan Chase, Wells Fargo, and Bank of America, brought in 44% of the total.
The CFPB also reports that while smaller institutions with overdraft programs charged lower fees on average, consumer penalties were similar to those found at larger banks.
The CFPB states that Overdraft/NSF Fee Reliance since 2015, for banks with assets over $1 billion saw a small but steady annual increase. These overdraft and NSF fees are said to make up close to two-thirds of reported fee revenue, indicating a heavy reliance on such fees.
So why don’t big and small banks stop these charges? Because it is difficult to report a serious drop in annual revenue.
LendingClub Bank, a fully chartered digital bank, offers over-draft protection. Neobank Chime does not charge any fee for overdrafts of up to $200. But these Fintechs do not have to own physical locations and staff expensive branches, something incumbent banks are struggling to match.