Overdraft and NSF fees remain very much on the radar of the CFPB, the federal banking agencies, and certain state banking agencies. The very fact that the CFPB continues to closely monitor bank call reports with respect to overdraft and NSF fee revenues demonstrates the Bureau’s ongoing focus on this issue. While we do not expect the CFPB to launch a rulemaking to curb certain practices, we do anticipate that the Bureau will closely scrutinize overdraft and NSF practices during examinations and refer matters to enforcement as UDAAP violations if its examiners dislike certain practices.
CFPB overdraft/NSF fee data. In a new blog post, the CFPB looks at how overdraft and NSF fee revenues have changed since it published its December 2021 report, “Overdraft/NSF Fee Reliance Since 2015 – Evidence from Bank Call Reports.” The blog post uses data from call reports from the third quarter of 2021 through the first quarter of 2022. The CFPB indicates that these quarters “represented important times for the overdraft market” because several banks announced changes to their overdraft programs in late 2021 and early 2022. It also indicates that it is an “open question” how these program changes, once implemented, translate into changes in overdraft/NSF fee revenues and that the analysis is “further complicated by the fact that some of the pandemic-era declines in overdraft/NSF fee revenues may be reversed as the economy and checking account balances return to a more usual course.”
The CFPB’s December 2021 report showed a 26.2 percent decline in overdraft/NSF fee revenues between 2019 and 2020. The new data used in the blog post shows that overdraft/NSF fee revenues continued to be depressed in 2021 and stayed below their 2019 volume by 27.4 percent. It also shows that in the first quarter of 2022, overdraft/NSF fee revenues stopped declining and reversed somewhat and were 20.1 percent below their corresponding 2019 levels.
The CFPB makes several other observations based on the new data. First, it observes that the fact that some large banks had significantly larger declines in overdraft/NSF fee revenues compared to other banks in 2021 could reflect an effect of their overdraft program changes. Second, it observes that the fact that some banks experienced less reversal in overdraft/NSF fee revenues than the market overall in early 2022 could be evidence of changing overdraft policies at these banks. Third, it observes that while some banks, particularly those with the largest decline in overdraft/NSF fee revenue, experienced an increase in revenues from other fees listed on their call reports (i.e., maintenance and ATM fees), such increases have not been large enough to offset the loss of revenues from overdraft/NSF fees.
In discussing the data, the CFPB defines banks as “small” or “midsized” based on their overdraft/NSF fee revenues. Small banks are divided into those collecting under $2 million and those collecting $2 million to $10 million in overdraft/NSF fee revenue in 2021, and midsized banks are divided into those collecting $10 million to $50 million and those collecting $50 million to $200 million in overdraft/NSF fee revenue in 2021. The data presented by the CFPB shows that in 2021 small and midsized banks collected 20 to 25 percent less in overdraft/NSF revenues than in 2019. The CFPB notes that “one factor contributing to this decline in overdraft/NSF revenues was the increase in consumer deposits, which was sustained through the first quarter of 2022 according to call report data.”
The CFPB finds that small banks have recovered a significant part of their pre-pandemic overdraft/NSF revenues in the first quarter of 2022, while some midsize banks, especially larger midsize banks, continued to report the same differences in overdraft/NSF revenues in early 2022 compared to pre-pandemic levels as in 2021. The CFPB observes that “[s]ome of these differences may be due to the possibility that midsize banks have implemented more overdraft policy changes than small banks.” It concludes the blog post with the following comment:
While many factors beyond overdraft program settings affect overdraft/NSF revenues reported in call reports – such as the number, composition, or behavior of checking account accountholders –, these figures give suggestive evidence that changes in overdraft program settings and in other checking account policies are making [a] meaningful difference in the amount consumers incur in various fees while using their checking accounts at their banks.
NY enacts bill requiring DFS to study overdraft fees. On July 15, New York Governor Hochul signed into law Senate Bill S9348 which requires the state’s Department of Financial Services (DFS) to conduct a study of overdraft fees and provide a report to the Governor within one year. The report is to be posted on the DFS website.
The law mandates certain subjects that the study must examine. They are:
- total amount of overdraft fees paid in New York;
- geographical distribution of overdraft fees;
- which communities have high rates of overdraft fees and the possible reason for such high rates;
- percentage of overdraft fees reduced through direct or indirect negotiation; and
- enumeration of consumer rights relating to fee negotiations.
Earlier this month, the DFS issued an Industry Letter providing guidance on overdraft and non-sufficient funds (NSF) fees to depository institutions that it supervises.
We continue to follow developments on the federal and state level involving overdraft and NSF fees and are consulting with clients on best practices.