US Banks See Overdraft Fee Revenue Climb Amid Regulatory and Economic Shifts
Fourteen of the largest U.S. retail banks saw their income from overdraft and bounced-check fees rise during the first nine months of 2023, while two major lenders reported declines, according to a Reuters analysis. The data highlights growing divergence across the industry and points to broader economic and regulatory factors making overdraft fees more common for consumers.
The analysis focused on the 20 largest U.S. retail banks reporting overdraft and „non-sufficient funds” (NSF) charges to the Federal Financial Institutions Examination Council. Together, these banks hold roughly half of all insured deposits in the country. Overall, overdraft and NSF fee income increased 2% to $2.99 billion, mostly driven by overdraft charges, as most banks have phased out NSF fees in recent years.
The rise comes after congressional Republicans scrapped a Biden-era Consumer Financial Protection Bureau (CFPB) rule that would have capped overdraft fees at $5, down from the typical $35. The regulation, expected to save depositors around $5 billion annually, was part of a wider effort to curb “junk fees.” With the rule rescinded, some banks reverted to previous fee practices while others maintained more consumer-friendly policies.
Experts say economic factors also play a role in overdraft revenue, with consumers more likely to overdraw accounts during financially challenging times. According to CFPB research from 2017, almost 80% of overdraft charges were generated by just 9% of accounts, often those holding only a few hundred dollars.
Among the banks seeing the largest increases, USAA Federal Savings Bank reported a 20% rise in overdraft fees, totaling $78 million, or more than a fifth of its net income over the period. Citizens Bank recorded a 17% increase, while TD Bank rose 14%. JPMorgan and Bank of America posted smaller gains of 8% and 2%, respectively. Conversely, Wells Fargo saw a 10% decline, and Truist reported a 22% drop.
Despite the recent uptick, overdraft fee income remains far below pre-pandemic levels. In 2023, the banking industry collected $6 billion in such fees, down from $13 billion in 2019, reflecting lasting impacts from prior consumer protection measures.
Christopher McGratty, head of U.S. bank research at KBW, said, “The numbers right now are night-and-day different from what they used to be. That’s consumer protection working.”
The data underscores the ongoing tension between banks’ reliance on fee income and regulatory efforts to protect consumers, as economic pressures continue to influence account management behaviors.
