The Bureau has recently conducted a study of the overdraft fee revenues of the biggest earners of such fees in the first nine months of 2021 and ranked the top 20 fee-takers. The Bureau then charted the changes announced by various institutions (see below)⁶. This is helpful data for the industry to understand.

There are at least a dozen take-aways from the charted information which are detailed below:

(1) Several top fee revenue FIs are not among the largest by asset size — notably, Woodforest National Bank ($107 million fees vs. #176 in assets); Arvest Bank ($52 million fees v. #78 assets); and Regions ($220 million in fees v. #33 assets). Some small banks are big players when it comes to ODP fee revenues. In a 2021 Brookings Institute Study⁷ it was reported that three such banks counted on such fees for more than 100% of their reported "profits" — First National Bank of Texas d/b/a First Convenience Bank (Killeen, TX) (281%), Academy Bank (Kansas City) (236%), and Woodforest National Bank (Woodlands, TX) (111%). To a slightly lesser degree, three other small banks earned a majority of their profits from these fees — Armed Forces Bank (Kansas City) (76%), Arvest Bank (Bentonville, AR) (62%), and Gate City Bank (Fargo, ND) (59%). As a percentage of profits, these six banks are highly reliant on ODP fees — compared to a regional bank average of about 9%.

(2) Among these top 20 fee revenue banks — the most common amendments were to drop NSF fees entirely (9/20 or 45%) and to extend the grace period to include the end of the next day after the transaction deemed short (7/25 or 28%).

(3) The dollar amount of overdraft fees for banks making recent changes only reduced among 3/20 FIs — Bank of America cut to $10, M&T to $15, and CapOne eliminated such fees entirely. But, 17/20 FIs kept the fee "as is" — most of them in the range of $34-$38.50. That will draw the attention of the CFPB as perhaps as an indicator of noncompetition.

(4) Only two of the charted FIs have no OD fees on any transactions — USAA and CapOne. [Ally is not on the chart]

(5) Several of the FIs added a cushion before OD fees are charged — with JPMC, TD, and USB adding this at $50 (Huntington was already at $50). But, the range of the cushion is large — from Citi, Regions, Key and Arvest (at $0), to Bank of America and Woodforest ($1), to Wells, Truist, PNC, Citizens, Fifth Third, M&T, and Bank of West ($5) — compared to Santander ($100).

(6) Seven of the top fee revenue FIs have not yet announced any recent changes to their ODPs — these include USAA (done previous to the chart), Huntington, Woodforest, Key, Citi, Arvest and Bank of the West.

(7) 5/20 or 25% of the top fee revenue FIs reduced the daily limit on the number of ODP fees and also placed a monetary limit on the total of OD plus NSF fees — Regions 3 ($108), PNC 1 ($35), Fifth Third 3 ($111), M&T 1 ($15), and Santander 3 ($210).

(8) NSF fees were dropped entirely by nine large FIs — Wells, JPMC, Bank of America, Truist, USB, Regions, PNC, M&T, and CapOne — but the mid-size regional banks and smaller FIs did not make this change.

(9) Two of the top 20 large fee FIs recently joined the "club" in not charging an extended/sustained negative balance fee — Truist and M&T — and in addition to those two FIs, there are 11 other FIs with similar program features — Wells, JPMC, Bank of America, TD, Regions, PNC, USAA, Woodforest, Citi, CapOne, and Arvest — thus, the absence of an additional negative balance fee is the most common feature of all variations of fee programs = 13/20 or 65%.

(10) For these largest 20 fee FIs, the nine months of 2021 revenues from such fees ranged from $1 billion (Wells) to $33 million (Bank of the West). The revenue hit from announced alterations is potentially impactful for some, but not all, of FIs. As a benchmark, these fees make up to 5-10% of many banks profits annually; but compared to all revenues, the range among the big four is noteworthy and relatively low — JPMC (1.2%), Bank of America (.29%), Citi (.03%), and Wells Fargo (.40%). Press releases accompanying ODP changes shed some light on the potential revenue loss. Wells Fargo signaled an annual $700 million decline in fee revenue from its changes in ODP fees. Truist stated "we expect these changes collectively to result in an approximately $300 million, or almost 60% reduction in overdraft-related revenue by 2024." And, Bank of America indicated that its changes will "reduce overdraft fee revenues by 97% from 2009 levels."

(11) Clarity in the explanation of program changes is challenging — even the CFPB (Chart at FN 4) says that the daily limit on charges for NSF and OD fees is still "unclear" — Huntington and Santander "appear" to apply the dollar limits separately, while Fifth Third may/may not set its limit for any combination of such fees. This finding underscores the CFPB focus on transparency.

(12) No OD fees on ATM withdrawals is a recent feature added by Bank of America and CapOne, but this benefit is only allowed by 5/20 or 25% of the FIs (JPMC, USAA, Citi).

Fintechs, often in collaboration with existing banks, have garnered significant new customers fleeing the burdens of bank ODPs. Such entities have significantly disrupted the terrain — utilizing their lower cost structure, more versatile technology, focused overhead, and trending appeal to younger adults who prefer banking by mobile apps. Such companies have enhanced their appeal by offerings such as AI analysis of customers' spending and savings patterns, as well as credit building products for the underbanked and the unbanked.

There are multiple new fintech entrants into this competition arena — just to name a few:

•Chime (www.chime.com)

•Tally (www.meettally.com)

•Dave, Inc. (www.dave.com)

•Money Lion (www.moneylion.com)

•Moven (www.moven.com)

•Aspiration (www.aspiration.com)

•Quontic (www.quontic.com)

•Varo (www.varomoney.com)

•Axos Bank (www.axosbank.com)

•Brigit (www.hellobrigit.com)

•Oportun (www.oportun.com)

These neobank and fintech players will continue to alter the competitive environment and prove new ways to make money from deepened customer relationships.

The CFPB has reliable data on ODP fees from banks larger than $1 billion in assets. But, the NCUA has not historically required credit unions to separately report such fees and the details of the related revenues. By proxy analysis, the Bureau issued a report in 2019 which utilized data gathered from the larger core processor entities handling such fee programs for credit unions, but noted that the data was somewhat stale (2017) and incomplete.⁸

The Bureau does not have examination authority over credit unions until they pass the $10B asset threshold — and only a half dozen of them today are at that level. The NCAU has been less vocal about its intent to track overdraft fees and to examine institutional reliance on such fee income, but it is certain to be making some policy changes in conjunction with the CFPB, OCC, FDIC, and the Fed.

This is a long slog. The existing regime evolved over the last 30 years and banking/technology/politics have all changed. Fintech is driving a new environment and government is too. ODP practices might prove the battleground of banking adaptability in the future. Which FIs can forego this revenue stream and potentially benefit from other affiliations and income sources in order to remain safe and strong suppliers of financial services is the question yet to be determined. Change is coming and it could be disruptive.

Perhaps one of the most thoughtful analyses of the overdraft battleground is in a 2020 report published by Oliver Wyman entitled "Beyond Overdraft: A Path to Replacing Unsustainable Revenue."⁹ The authors indict the existing overdraft regime: The "value exchange is unsustainable in a competitive marketplace, and broader industry trends are now in the process of resetting the market." Be ready or be at risk.

1 https://bit.ly/3hthwL9 and https://bit.ly/35Fetgi

2 CFPB request for information to lay groundwork for rule making. Jan. 26, 2022).

3 CFPB "Data Point: Frequent Overdrafters" August 2017

4 https://bit.ly/3K4XLG7

5 See "DataPoint: Overdraft/NSF Fee Reliance Since 2015 — Evidence from Bank Call Reports."

6 Chart originally published on the CFPB's website, available at https://bit.ly/3szvKjY.

7 https://brook.gs/3tjAiKw

8 See "Overdraft Core Processors Report."

9 https://owy.mn/35Fvsiy