More banks curb or ditch overdraft fees. Is this the end of an era?

By Allissa Kline, Polo Rocha, Laura Alix, Jon Prior

January 31, 2022 1:14 PM

The trickle of banks eschewing overdraft fees has become a flood.

Six months ago, American Banker published a look at 10 large and midsize banks that were either reducing their reliance on overdraft fee revenue or eliminating the controversial charges altogether.

At the time, banks were facing competitive pressure from overdraft-free online challengers. And Biden-era regulators were expected to take a tougher stance on charges that could lead customers to pay $35 for a cup of coffee.

Since then, the landscape has started to change even faster.

New leaders at the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency have made their dissatisfaction with the status quo clearer.

Some banks that had already announced changes meant to reduce their overdraft fee revenue unveiled additional steps. Other banks that had yet to take action pledged to do so soon.

The following rundown of 12 large and midsize banks describes not only the steps they are taking to reduce or eliminate overdraft fees, but also how they plan to compensate for the lost revenue. (Feb. 1, 2022 update: This slideshow has been updated to include JPMorgan Chase.)

It is not an exhaustive summary, and it doesn’t include either community banks or credit unions, even though some smaller depositories have also made their overdraft policies more consumer-friendly.

It does, however, demonstrate how quickly a longtime mainstay of the consumer banking business has fallen into disfavor.

Regions Financial

Regions changed its overdraft policies last summer — revising the order in which customer transactions get processed, a move that was expected to reduce fee revenue.

Earlier this month, the $163 billion-asset company went further. It committed to eliminating both nonsufficient funds fees — which had been charged to customers with negative balances when transactions were rejected — and fees charged when a negative balance was covered by a transfer from a linked account.

Regions also said it will limit overdrafts to three per day, give customers early access to their direct deposits and offer small-dollar lines of credit that will provide short-term liquidity.

The changes will be made official in the coming months, and they’ll be costly to Regions. The Birmingham, Alabama, bank could lose out on up to $70 million this year alone. Company executives say they are continuing to eye nonbank acquisitions, which could make up for the lost revenue.

Photo taken of front of Synovus regional office in Atlanta area.

Synovus Financial

Last summer, Kevin Blair, the newly arrived CEO of Synovus, declared that the Columbus, Georgia, bank would be making changes to curtail overdraft charges.

Blair said during a July 2021 earnings call that there would be “product changes and some new digital tools and most importantly some education.”

The changes appear to be having an impact. Synovus collected $20.7 million in overdraft-related fees in 2021, according to its latest available call report, about equal to the amount taken in during 2020 but down about 30% from before the pandemic in 2019.

In January 2022, during the company’s most recent earnings call, Chief Financial Officer Jamie Gregory said there has been “broad-based growth” in nearly every line item — except for fees assessed when customers do not have sufficient funds.

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Victor J. Blue/Bloomberg

JPMorgan Chase

Last August, JPMorgan Chase raised its overdraft cushion from $5 to $50, and the country’s largest bank by assets is planning several other changes to help customers avoid the fees.

The bigger cushion ensures that customers do not pay overdraft service fees when their account is overdrawn by $50 or less at the end of the day.

Later this year, JPMorgan Chase plans to add a new option to help customers whose accounts are overdrawn by more than $50, giving them a day to avoid fees by bringing their overdrawn amount below the threshold.

Jennifer Roberts, JPMorgan Chase’s CEO of consumer banking, said in a December press release that giving customers the ability to overdraw their accounts will help them avoid both late fees and damage to their credit scores.

The New York megabank also plans to allow customers to access their direct deposit funds up to two days early. Last year, it eliminated a returned item fee that customers were previously charged when the bank declined a transaction due to insufficient funds.

Citizens Financial Group

Citizens Financial Group in Providence, Rhode Island, launched its new overdraft policy in October.

Under the revised policy, the bank’s customers can reverse an overdraft fee if they bring their account to a positive balance within 24 hours. The company also announced plans for a new checking account intended for low-income customers, which will not charge overdraft fees.

Citizens recently calculated that it will give up around $40 million in annual fee revenue under its new policy.

But the $188 billion-asset company also said that the changes have delivered some significant early benefits. Calls and complaints to the bank’s customer service center fell 40% since the policy was implemented, and net promoter scores have increased, particularly among consumers under age 40.

Citizens also said that it expects to more than recoup the shortfall in overdraft income through other fee-generating businesses, such as capital markets and wealth management.

BMO Harris Bank

BMO Harris Bank in Chicago made several revisions to its overdraft policies in November.

The U.S. retail banking unit of Bank of Montreal raised the threshold at which customers are charged an overdraft fee from $5 to $50 and eliminated consecutive-day overdraft fees. The $166 billion-asset bank also cut the maximum number of overdraft and returned item fees that a customer can incur in a day from four to three.

A company spokeswoman said that overdraft is an ongoing area of focus and that the bank is exploring further potential changes.

Santander Bank

Santander Bank in Boston took steps in November to substantially reduce the amount of overdraft fee income it collects.

The $89.5 billion-asset U.S. unit of Spain’s Banco Santander raised the threshold above which consumers and small businesses will incur an overdraft fee, from $5 to $100. When Santander announced the change, executives estimated that 90% of its customers would never be charged an overdraft fee under the new policy, dubbed Santander Safety Net.

The bank set the new threshold at $100 in large part because it was memorable and easy to understand, according to executives.

“What we learned is that $100 is the easiest number for people to remember,” Pierre Habis, Santander’s head of consumer and business banking, said at the time. “That was the guiding principle.”

Capital One Financial

In December, Capital One became the largest U.S. bank to announce plans to scrap overdraft fees entirely, following in the footsteps of Ally Financial a few months earlier.

Capital One’s default option will be an automatic decline of purchases that take consumers’ accounts into a negative balance, but customers will be able to opt in to a free service that covers purchases temporarily.

Customers who opt in to that service will need to return to a positive balance, and any incoming deposits will go toward repayment, according to the $432 billion-asset bank.

“Overdraft protection is a valuable and convenient feature and can be an important safety net for families. We are excited to offer this service for free,” Capital One founder and CEO Richard Fairbank said in a press release at the time.

The McLean, Virginia-based bank is not setting a cap on how many times customers can overdraw their accounts, though it will limit the dollar amount that they can overdraw depending on each customer’s risk profile.

Customers will also need to meet certain requirements to continue to be eligible for free overdrafts, such as receiving regular deposit inflows, according to the bank.

U.S. Bancorp

U.S. Bancorp in January rolled out the first of several changes to its overdraft program: eliminating fees for nonsufficient funds.

By the end of the second quarter, the $573 billion-asset parent company of U.S. Bank also plans to increase the amount that an account may be overdrawn before incurring fees, lifting the limit from $5 to $50.

The Minneapolis company — which currently charges $36 per overdraft — will also give customers 24 hours to deposit funds into an account that has a negative balance of more than $50. Additionally, in an effort to give customers more visibility into their accounts, U.S. Bancorp plans to launch a digital balance dashboard that alerts them to potential negative balances before they actually happen.

U.S. Bancorp projects that it will lose $160 million to $170 million in annual fee revenue when all of the changes are implemented.

Truist Financial

Two weeks ago, Truist disclosed a broad array of upcoming overdraft policy changes, including the launch of two overdraft fee-free checking accounts that will include a line of credit of up to $750.

The Charlotte, North Carolina-based company is also planning to ditch fees for not having sufficient funds, as well as charges for negative account balances and overdraft protection transfers, according to executives.

“Long term, this is a win-win for all of our stakeholders as we will increase client acquisition, enhance deposit growth and simply improve the overall client experience,” Chief Executive Bill Rogers said during the company’s Jan. 18 earnings call.

Eventually, the two new checking accounts, one of which is designed for unbanked and underbanked consumers, will be the only checking accounts offered by Truist.

How much fee income will the $541 billion-asset company lose? Executives said the changes will result in a decrease of about $300 million in annual overdraft-related income, or nearly 60% of the company’s total, by 2024.

Wells Fargo

Wells Fargo said this month that it would scrap fees for transferring money from a linked account to avoid overdrafts, eliminate nonsufficient funds fees and allow customers to access their direct deposit funds up to two days early.

The early access will be available in the second half of the year, as will a new 24-hour grace period that will allow customers to cover purchases that take their balances into negative territory. The one-day grace period will replace another feature that has been in place since 2017, which waives overdraft fees for consumers who get a direct deposit by the next morning.

The $1.9 trillion asset-bank also plans to launch a new short-term credit product this year, which will let customers borrow up to $500 for a fee.

In September 2020, San Francisco-based Wells Fargo launched an account that does not charge overdraft fees. It said last May that it would increase its outreach to consumers about that account.

Bank of America

Bank of America recently announced one of the industry’s biggest plans to reduce overdraft revenue, pledging to slash its overdraft fee from $35 to $10.

Analysts said the move could prompt other banks to follow suit, and two weeks later, First Citizens Bancshares in North Carolina did just that.

Holly O’Neill, Bank of America’s president of retail banking, said conversations with customers and community groups highlighted that “clients wanted access to occasional overdrafts.”

The Charlotte, North Carolina-based bank decided $10 was a fair price for the service, and O’Neill said the lower fee saves customers money while “promoting the right financial behavior.”

The change will kick in this May, as will a related action to scrap a $12 transfer fee for a program that lets customers link other accounts to avoid overdrafts.

Starting in February, BofA is taking two additional steps: It's eliminating customers’ ability to overdraw their accounts at an ATM and jettisoning nonsufficent-funds fees.

M&T Bank

M&T in Buffalo, New York, is planning to unveil changes to its overdraft policies in the coming months.

But first, the $155.1 billion-asset company is taking note of how other large and regional banks are responding to the mounting pressure to reform overdraft coverage, M&T Chief Financial Officer Darren King said in a recent interview.

That list includes banks such as Truist, U.S. Bancorp and Regions. “We’re looking and going back and saying, ‘How do our changes stack up with competitors?’ ” King said.

M&T will probably announce updates to its policies sometime during the first quarter, King said.

The company currently charges $36 per overdraft, except in certain circumstances, such as when the purchase is less than $5, or when the customer has already been charged five overdraft fees that business day.