The increased focus and discussion about nonsufficient-funds fees in recent times have given me a feeling of déjà vu all over again. Working primarily within the in-store banking channel for large parts of my early career, I took part in countless interviews, discussions, debates and arguments about the ethics of NSF fees.
These brought on some of my first skirmishes with folks about the tendency of many pundits and critics to paint bankers as the bad guys in any debate. The disconnect between the reality I personally observed and the stereotypes constantly portrayed was stark.
Have there been operators over the decades who were less-than-ethical with their disclosures and protocols regarding overdraft fees? There were. But they were a very small minority. Sadly, there are unscrupulous players to be found in just about every industry you care to list.
Should unethical operators be called out? Yes. Should rule breakers be punished? Absolutely.
I would suggest, however, that too many ethical operators are smeared without cause. Simply the fact that overdraft fee income is an item — even a consequential item — on a bank’s income statement is not a negative thing on its face.
It strikes a nerve with me, as there were energetic debates going back more than 20 years about whether in-store locations specifically targeted customers prone to overdrawing accounts. The only evidence most had was that these branches tended to generate noticeably higher fee income than traditional brick-and-mortar branches.
The fact that these locations also tended to generate far more new checking accounts than other channels was largely ignored. More total accounts tended to equal more total fees, but the math escaped many critics.
The fact that the majority of in-store operators were far more transparent and open about how and why fees were charged was frequently ignored by detractors, as well.
Tellingly, also disregarded was the fact that many of the operators generating higher fees tended to have better customer satisfaction scores than their peer groups.
It didn’t make sense to well-meaning outsiders that customers paying overdraft fees would actually be happy with their bank.
The fact, however, is that the great majority of customers utilizing overdraft privileges, then and now, do so knowingly and willingly.
Would folks prefer not having to overdraw their account? Of course. But it is a service and feature that most greatly value and willingly pay for.
There have been periods over the past two decades in which the NSF-fees debate has heated up more than usual. During one such period about 10 years ago, a senior manager friend at a large regional branch shared a story from a focus group she observed behind a two-way mirror.
When one young woman was asked what she thought about paying NSF fees, she said: “Oh, yeah, I understand that. In fact, I have a rent check due this week that I don’t have the money for yet. I’m going to write a check and my bank is going to cover it. I’ll pay the fee, and I love my bank for doing that for me.”
My friend said she never expected to hear the words, “I love my bank … ” in the same sentence about paying NSF fees. However, it opened lots of eyes in her organization about what customers valued.
The bank was that young woman’s safety net. Some would argue that there are other ways she could have protected herself, but her bank’s NSF policy worked seamlessly and reliably for her. It was her choice.
That particular bank was also one of the more aggressive at promoting and furnishing information to increase customers’ financial literacy. And to be fair, many banks do the same. A community bank CEO recently pointed out to me that many banks are offering the only financial literacy education most of their customers have ever received.
He stressed that their goal is to always have the most informed and satisfied customers possible.
A point I reinforced to him is that bank leaders should consistently remind their teams of their roles in helping customers understand the tools and options available to them to avoid fees when possible. But with that, also recognize when and why some fees are justly charged.
Regulations may change and policies may evolve in the future. And bankers will adapt, adjust and continue to do the right things by customers.
Banks are about providing customers with the information, tools and vital financial support they need, when they need it. As in all businesses, some services come with a fee. It doesn’t signal that a customer was misled. It most often means they were provided a crucial service they value enough to pay for.
