On 12/1/2021, the CFPB released research finding that banks continue to rely heavily on overdraft and non-sufficient funds (NSF) revenue. According to the research, overdraft and NSF revenue reached an estimated $15.47 billion in 2019.
According to the CFPB’ release, 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.
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 November 30, the Federal Deposit Insurance Corporation released data revealing that insured banks earned $69.5 billion in the third quarter of 2021, which is 36% higher compared to 2020.
The CFPB released two data points which included the following highlights:
1. Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports
The report shows that banks’ revenues from overdraft and NSF fees have been stable, especially before the COVID-19 pandemic.
From 2015, aggregate overdraft and NSF fee revenues reported in Call Reports for banks with assets over $1 billion saw a small but steady annual increase of around 1.7% per year to $11.97 billion in 2019.
Complementing the Call Report data with data on small institutions, CFPB researchers estimate that the overall market revenue from overdraft and NSF fees was $15.47 billion in 2019.
While aggregate overdraft and NSF fee revenues declined by 26.2% in 2020, increased checking account balances resulting from federal stimulus payments likely contributed to this decline.
2. Checking Account Overdraft at Financial Institutions Served by Core Processors
This report 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.
CFPB researchers report that 92.9% of smaller banks and 60.9% of credit unions had an overdraft program, making such programs less common at these institutions than among large banks.
The smaller institutions were also less likely to offer the option to opt in to debit card overdraft, with two thirds of institutions with overdraft offering this option.
while overdraft and NSF fees were 13 to 19% lower at small banks and credit unions than at large banks, credit unions and small banks with an overdraft program earned $42.33 and $40.37 in annual overdraft revenue per account, respectively, which was just 6% and 11% less than large banks, respectively.
The full CFPB release can be found here.
