Last year at this time, all but two of the 20 largest commercial banks in the nation charged fees to consumers whose accounts did not have enough money in them to pay for certain purchases.
Today nonsufficient-funds fees, which are also sometimes called returned-item fees, are largely a thing of the past among the top 20 banks. Thirteen of them have ditched NSF fees as part of broader overdraft reform and four more are scheduled to do the same by the end of this year, according to an American Banker analysis of the banks' policies around consumer NSF fees.
That leaves just three holdouts — SVB Financial Group in Santa Clara, California; Huntington Bancshares in Columbus, Ohio; and MUFG Union Bank in San Francisco, the analysis shows.
While Huntington lowered both its overdraft and NSF fees from $36 to $15 earlier this year, it and the other two banks have not announced plans to eliminate NSF fees. But ever-present industry competition and increasing pressure from both lawmakers and regulators to revise overdraft practices in general might force them and other regional banks to drop them, too, some say.
The drumbeat grew louder Thursday as the Federal Deposit Insurance Corp.
"We're moving in a direction that I don't think is going to go in reverse," Scott Siefers, an analyst at Piper Sandler, said in an interview. "In my mind, it's a matter of when, not a matter of if."
The demise of NSF fees at many large and regional banks — which has come amid a
The pullback on NSF fees continued in June 2021 when Ally Financial in Detroit
The Federal Deposit Insurance Corp. said that multiple nonsufficient-funds fees charged on the same transaction when consumers don't have enough money in their account could violate the Federal Trade Commission Act.
Capital One Financial in McLean, Virginia, cut out NSF fees in December when it
NSF fees, which can be assessed when a check bounces or when a debit card purchase is declined, are different from overdraft fees, which are levied when banks cover purchases for customers whose accounts don't have enough money to pay for the specific transaction.
Customers have to "opt in" to receive overdraft coverage, while NSF fees can be assessed without customers' prior consent that they will be charged when their balance is too low.
Most changes to NSF fee practices at the 20 largest banks have taken place this year. The list of banks halting NSF fees in the first six months of this year includes Bank of America, Citigroup, Wells Fargo, U.S. Bancorp, Truist Financial and Fifth Third Bancorp.
Effective Aug. 6, PNC
The impact of such decisions on revenue can become evident quickly. On Wednesday, Bank of America reported a
By next year, the bank's consumer overdrafts fees are expected to have fallen 97% compared to 2009 levels, the company said in a release.
At PNC, the decision to end NSF fees for all consumer deposit accounts was a "logical extension" of what the bank introduced last year, said Matt Steenson, head of consumer banking.
"We saw last year that we could keep the utility of overdraft, but offer a much more economical solution and we think we've done that," Steenson said in an interview. "We think we have a really credible position where we're not only helping consumers, but we're part of the solution."
Huntington was an even earlier mover on the overdraft scene. In 2010, the company with $179 billion of assets launched its "24-Hour Grace" service, allowing consumers to overdraw their accounts without penalty as long as they replenish the funds by the end of the next business day.
When asked to explain the bank's current strategy around NSF fees specifically, Brant Standridge, president of consumer and business banking, said in an email that "the company continuously review[s] and adapt[s] all products and fees based upon changing market conditions and feedback from customers, colleagues and stakeholders … and we will continue to look out for our customers to ensure we continue to strengthen their financial health."
Likewise MUFG Union Bank, which charges $33 every time a consumer's account lacks enough money to complete a transaction, is sticking with NSF fees for the time being. The company, which continues to await regulatory approval to be acquired by U.S. Bancorp, is "constantly evaluating [its] products and services and will continue to make changes along the way to meet the needs" of customers, a spokesperson said Thursday in an email.
Banks' decision to pivot away from NSF fees is "a smart move" because there's not a good business case for keeping them, said Heidi Johnson, director of behavioral economics at the Financial Health Network, a Chicago-based nonprofit that focuses on consumer financial health.
Overall, NSF fees don't bring in as much revenue as more lucrative overdraft fees do, she said. They are also not particularly effective as a penalty since, in some cases, the timing of the transaction processing that can lead to an NSF fee isn't something the customer can control.
But there is a good business case for ditching them, Johnson said. While many consumers seem to want their bank to help improve their financial health, only a fraction say their bank is actually doing that, she said. And that means banks have an opportunity to offer more help.
"That creates a constructive relationship and NSF fees really get in the way of that," she said.
There's also an opportunity for banks to make up the NSF-fee revenue they're losing, said Olivia Lui, director of marketing and product innovation at the market research firm Curinos. If banks can figure out a way to differentiate themselves from peers by creating products, services and experiences that customers want and need, those customers might be willing to pay for such things, Lui said.
It's something that more banks may consider as they join the fee-ditching wagon, Lui said.
"I would assume the industry will continue on its way," Lui said. "And in order to compete, you're going to have to meet consumer expectations that NSF fees are going away and overdraft fees will dramatically decline."
