February 19, 2022 / VOLUME NO. 197

The Overdraft Wall of Shame

Some bankers remember the days when you walked into a grocery store, and there was a wall of shame near the front door exhibiting bounced checks. The court system was filled with criminals who had written bad checks, basically a form of theft. 

But in the last 12 years, the wall of shame has shifted from customers who write bad checks to the banks that make money off of them. The Consumer Financial Protection Bureau issued its own public shaming report in December 2021 that found the banking industry practiced “fee harvesting,” making $15.47 billion in overdraft and nonsufficient funds fees in 2019. Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. were singled out for special condemnation. Last month, CFPB Director Rohit Chopra called for public comment about “junk fees.” 

Many of the largest banks in the country are heeding the warnings. Overdraft fees are out of favor among banking regulators and Congress, which tried to pass overdraft laws last year. Even though the CFPB found fewer than 9% of customers make up almost 80% of overdraft fee revenue for banks, banks are moving to protect that group of overdraft over-users — perhaps in a bid to ward off further regulation. 

At least five large banks last month announced plans to eliminate nonsufficient funds fees and implement overdraft reforms: U.S. Bancorp, Bank of America, Truist Financial Corp., Wells Fargo and Regions Financial Corp., according to The Pew Charitable Trusts, a nonprofit that has tracked the issue. Those banks also have proposed or implemented small dollar loan or lines of credit aimed at reducing the costs of overdrafts.

Columbus, Ohio-based Huntington Bancshares was an early pacesetter, introducing a 24-hour grace period for overdrafts in the wake of the 2008 financial crisis. Now, even Walmart has even jumped into the fray, offering 24-hour grace periods, $15 overdraft fees and $100 or $200 fee-free overdrafts in exchange for monthly direct deposits into a Walmart account. (Walmart uses Green Dot Corp. to offer the accounts.) 

Banks that don’t reduce pricing to make overdraft less costly for customers may find regulators will do it for them. 

• Naomi Snyder is editor-in-chief of Bank Director

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