Why Regulatory Relief Is Unlikely to Revive Deposit Fee Income

Bankers may be anticipating a lighter regulatory touch under the Trump administration, but it may not lead to higher deposit fee income for banks.

Service charges on deposit accounts have declined since 2021, falling to a little more than $28 billion at the end of 2023, according to Fitch Ratings. Some of that decline is likely due to preemptive moves to lower deposit fees and avoid regulatory scrutiny.

Notably, the Consumer Financial Protection Bureau finalized a rule at the end of 2024 capping overdraft fees at $5 for banks above $10 billion in assets, part of a broader push against so-called junk fees. The rule is scheduled to go into effect later this year, but Republicans on key financial services committees in both the House and the Senate have since proposed bills to get rid of that cap on overdraft fees. President Trump appointed two acting directors of the CFPB, who promptly shuttered the agency and sent employees home. But the change in regulatory leadership won’t likely provide much wiggle room to raise deposit fees again. Banks still largely face market pressures to keep non-sufficient funds and overdraft fees down.

“The regulatory pressure is going to lighten up, but I think the competition and technology are going to continue to drive down costs and that’s going to have that effect of lowering fees,” says Christopher Wolfe, a managing director with Fitch Ratings. “Competition is still pretty robust, so it’s hard to be too far outside of the mainstream in terms of where fees are.”

Banks charge an overdraft fee to cover a consumer’s payment when there isn’t enough money in the account, while a non-sufficient funds fee is charged when a payment is declined because of insufficient funds. According to a study by Bankrate, the average overdraft fee was $27.08 and the average NSF fee was $17.72 last year.

Overdraft and NSF fees peaked in 2019, according to an analysis by the Federal Reserve Bank of St. Louis. Many banks suspended overdraft fees in 2020, at the height of the Covid-19 pandemic, and some banks announced afterward that they would permanently slash those fees. The $192 billion Ally Financial scrapped overdraft fees in mid-2021. A year later, Bank of America Corp., which has $3.3 trillion in assets, cut overdraft fees from $35 to $10.

Additionally, digital account opening capabilities can make it easier for consumers to switch banks if they find their current bank’s fee structure too onerous. A consumer can move to a different financial institution without leaving their home. Digital-only banks have benefited from this, and because those banks have lower overhead costs, they can sometimes offer better terms.

Some consumer-focused fintech firms, such as Chime, heavily emphasize their lack of overdraft fees in their marketing and advertising efforts. Bank Director’s 2024 Technology Survey has found increased concern over the past two years about competition from neobanks specifically focused on consumer deposits.

Bankers may even want to consider the possibility that consumers could, someday in the near future, access financial advice about banking that’s enabled by generative artificial intelligence, says Neil Stanley, CEO of The CorePoint, a deposit consulting firm. Such a service could eventually have the impact of guiding depositors toward institutions that offer fewer fees or better rates.

A big question going forward is how banks can recoup some of that lost deposit fee revenue in some other way, or if they even can.

Some deposit attrition may be inevitable for those banks that don’t want to budge on certain deposit account fees. Overdraft and nonsufficient funds fees tend to hit lower-income consumers harder, and it may be an uncomfortable fact of life that many banks are simply fine with letting those smaller balances walk out the door.
“There could be some deposits leaving,” Stanley says.“I don’t see a lot of tension for bankers in that, if they are feeling they need to reduce that NSF fee.”

The idea that lighter regulation could automatically translate into free reign on deposit fees is “a fundamental misunderstanding of how pricing works,” says Mike Moebs, chair of the financial research firm Moebs Services. Bankers need to consider the overall value of a checking account, and for many organizations, that value includes the potential business gained by cross selling other products and services.

“Just make sure the checking account is profitable, and how can you do that? Cross selling,” he says. “That’s where the banks have an edge on credit unions and even fintechs.”

But making that up in brand new lines of business, like wealth management or insurance, may prove challenging if a bank doesn’t already possess that core competency, Stanley adds. “It’s a challenge to be profitable at something that other people are doing. It’s really hard to just open that door and bring in revenue.”

Wolfe also cautions that even regulatory relief on deposit fees may be short-lived and subject to the whims of the election cycle. Midterm elections or the next presidential election could change the dynamic.

“The regulatory pendulum swings back and forth,” he says. “There could be different people in charge who want things to go back to the way they were.”