The good news: Those annoying (and expensive) overdraft and “non-sufficient funds” fees from your bank — of some $35 per pop! — have plummeted over the past couple of years, saving consumers some $5.5 billion (or about $150 a household).

In 2019, banks and credit unions collected $15.5 billion through overdraft and non-sufficient funds fees. In 2022, that shrank to $7.7 billion, according to the federal Consumer Financial Protection Bureau (formed after the Great Recession to protect the little guy — which some folks love to hate). Great, right?

The perhaps not-so-good news: Banks still collect billions in these fees. About one of every four households still pays them, and they’re mostly folks at the lower end of the income ladder whose bank accounts dry up at week’s or month’s end, just before new money arrives.

The left-leaning non-profit Accountable.US looked at data from the 10 largest banks still charging these fees and found that, in the first three quarters of 2023, they collected more than $2.34 billion. And that was before most folks started holiday shopping!

“While a number of banks have started to lower these fees — and the total volume of fees has started to go down overall — overdraft practices still penalize customers with limited resources and create financial obstacles for them,” the CFPB said. “CFPB research has found that people who pay more than 10 overdraft fees per year end up paying nearly three-quarters of all overdraft fees, and on average, these frequent overdrafters paid $380 in overdraft fees during the year.”

These folks are more likely to be economically disadvantaged, have limited education and be non-White, the CFPB found. While only 10% of folks with annual household income above $175,000 paid these fees, about 34% of households with income below $65,000 did.

Banks say that a great deal of innovation has come to this space over recent years and overdraft programs provide vital short-term liquidity to those who need it the most.

A battle brews as the CFPB prepares to crack down on these fees — and the banking industry gears up to defend them.

What are they?

Overdraft fees are charged when your financial institution determines that your checking account doesn’t have enough funds to cover an expense — but pays it anyway. We’ve heard that can happen with alarming regularity right before the paycheck arrives (ahem).

Non-sufficient funds fees are what some banks charge when they decline transactions that would dip the account into negative territory.

Overdraft fees “are often assessed for reasons people do not expect or understand, chip away at needed income including public benefits, and take a heavy toll on families living paycheck to paycheck,” the CFPB has said. “And, overdraft fees can ultimately drive people out of banking altogether….

“Some people are saddled with fees when they have several pending transactions and a low balance. Indeed, many overdrafts happen soon before someone receives a paycheck or benefits payment — times when account balances are likely to be low.”

Here are the overdraft fees made by the 10 largest banks that still have them, according to federal data crunched by Accountable, from January through September of 2023:

JPMorgan Chase & Co., America’s largest bank, $839 million.
Wells Fargo, $681 million.
PNC Financial Services, $194.5 million.
TD Bank, $171.6 million.
U.S. Bank, $158.2 million.
Bank of America, $103 million.
Fifth Third Bank, $81 million.
Citizens Bank, $72.9 million.
BMO Harris, $26.3 million.
First Citizens Bank, $15.6 million.

It’s a sensitive thing, as there has been skullduggery in this space.

In past years, myriad banks paid hundreds of millions in fines and legal settlements on accusations they manipulated transactions to maximize these fees. One tactic was to reorder customer transactions from largest to smallest, rather than processing them in chronological order, so fees piled up because account balances fell faster. Another was to enroll customers in overdraft programs and charge them overdraft fees without their consent.

Banking reps say a great deal has changed since then, and any emphasis on misdeeds of the past is like your big sister assuming you’re still 12 even after you’re all grown up.

Reform

There have been major voluntary reforms as of late, industry reps say, and they don’t need more blasted federal regulation.

In 2021, Ally Bank — “The Largest Digital Bank In The U.S.” — eliminated overdraft fees on all accounts. “Overdraft fees are a pain point for many consumers but are particularly onerous for some. It is time to end them,” CEO Jeffrey Brown said at the time.

Capital One eliminated overdraft and non-sufficient fund fees for its consumer banking customers — and continued to provide free overdraft protection — that year as well. “The bank account is a cornerstone of a person’s financial life,” said a prepared statement from Richard Fairbank, CEO. “It is how people receive their paycheck, pay their bills and manage their finances. 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.”

Chase increased the overdraft buffer from $5 to $50 — effectively eliminating overdraft fees for customers with a negative balance of less than $50 — and stopped charging overdraft fees if the trigger transaction was $5 or less.

In 2022, Citigroup eliminated overdraft fees, increasing “financial inclusion in underserved communities.” Bank of America reduced overdraft fees from $35 to $10 and eliminated non-sufficient fund fees, shrinking revenue by more than 90 percent. Chase decided it would not charge overdraft fees if the account balance was restored to at least “negative $50” by the end of the next business day.

“For more than a decade, Chase has focused on helping customers who want the option of overdraft when they’re short on cash or in a time of need,” spokesman Peter Kelley said by email. “We pay millions of transactions totaling billions of dollars each year on accounts with insufficient funds. Because of the changes we have made, nearly 70% of these transactions do not incur any overdraft fee.”

A Wells Fargo spokesperson said that customers seek choices in how they manage personal finances. “Today we offer customers a low cost, no overdraft fee bank account, Clear Access Banking. We also have introduced automatic features for our customers, including an Extra Day Grace period before incurring any overdraft fees, and tools to manage their money, such as balance alerts. We are focused on providing our customers clear, transparent options that inform their decisions and help them avoid fees.”

Chris Powell, executive vice president and head of consumer checking and deposits at Citizens, said the bank has worked to make banking more flexible and transparent, eliminating non-sufficient funds and savings overdraft protection fees, offering a program to let folks access their paychecks up to two days early, and creating overdraft-free accounts designed to increase banking access to all consumers. Overdraft fees have dropped by more than 50% since 2019, and by 80% since 2008, Powell said in an emailed statement.

And here’s the thing, the Consumer Bankers Association says: Folks don’t have to have overdraft protection. They can open accounts that expressly do not have it. They can decline it where it’s offered. The industry trade group makes its case at a new website, OverdraftFacts.com.

‘Critical financial cushion’

“The Value of Overdraft Services,” its title page says, “(And why government mandates are misguided).”

Overdraft services remain a valued and preferred option to payday loans, car title loans or even pawn shops, it argues. “These non-bank alternatives to overdraft not only deprive consumers of the high level of protections they’ve come to expect from a well-regulated bank, they’re also significantly more expensive,” it argues. “According to the CFPB, a typical payday loan … charges an annual percentage rate (APR) of almost 400 percent.”

The CFPB is offering a one-size-fits-all regulatory regime that could stifle years of bank-led innovation, hinder competition and lead to fewer choices for consumers, it argues.

Well-intentioned regulation “could inadvertently damage the financial resilience millions of Americans who knowingly use and rely on overdraft as one of the few emergency safety net tools still available within the well-regulated banking system,” the bankers say. “For many hardworking families, this feature provides a critical financial cushion to cover unexpected expenses in times of need – whether to pay their rent or simply put food on the table.”

The CFPB isn’t convinced. It notes the industry’s progress, but clearly sees room for improvement.

In fall of 2022, it ordered Regions Bank to pay nearly $200 million in relief for charging customers surprise overdraft fees. In December, it announced an enforcement action against Wells Fargo including some $205 million in surprise overdraft fees.

In October, two customers seeking class-action status sued Fifth Third Bank, alleging it charged “unconscionable” overdraft fees on debit transactions even when their bank accounts had enough money to cover purchases.

A Fifth Third spokesperson said it doesn’t comment on pending litigation, but will continue to defend itself vigorously. The bank has reduced overdraft fees, eliminated non-sufficient funds fees and returned deposit item fees, and offers an “Extra Time” program giving customers 24 hours to make deposits to avoid overdrafts.

After the CFPB delivers its latest, expected any day, there will be a comment period (up to 60 days), then a review, culminating in a final rule. It’s an election year, bankers observed, and cynics might see some political motivation behind the “junk fee” narrative. Consumers who’ve endured hundreds of dollars worth of these charges, however, might see wisdom.

“In our view, the banking industry would have not done any self-reflection or self-regulation had the Biden administration not publicly called out these greedy practices and announced their intent to crack down on them,” said Accountable’s Jeremy Funk by email.

“To the extent some banks have reined it in, it seemed guided more by ‘getting ahead of coming regulation’ than ‘doing the right thing for consumers.’  Meanwhile, megabanks like Wells Fargo, Bank of America and JPMorgan seem intent on clinging onto these practices until the bitter end when looming regulations take effect.”

Stay tuned. And keep an eye on those bank statements!