Banks across the country saw a steep decline in fee income derived from overdrafts in 2020 likely due to pandemic related stimulus checks that pushed up consumer’s checking account balances. It bounced back somewhat in 2021 but there was another sharp decline in 2022.

Service charges that banks derive from overdrafts hit an all time high in the late 2000’s when the industry collected over $30B annually. In 2022 that number is less than $8B according to a recent report from the Consumer Financial Protection Bureau, a 75% drop in fee income. What happened and what can our industry do?

Consumer spending habits have changed and they are less likely to overdraw their account. Also, debit card regulations changed in 2010 which made banks get confirmation that a consumer wants their debit card paid at point of sale, even though they may not have enough money in their account. This was a great regulation and it gives the consumer a choice on how they want their account handled in the case of an overdraft. It also alleviated the problem for banks when they have to decide what to do in that situation. A win-win situation for consumers and banks.

Bankers for decades have been afraid to charge fees for services received by their customers. An example would be charging a fee for a checking account. Strunk’s Value Checking program has been around since 2011 and over 1,300 financial institutions have implemented it. Very simply, add benefits to all checking accounts and charge a small monthly fee on the account. ID theft protection, roadside assistance, and cell phone coverage are some examples of valuable benefits consumers are paying for elsewhere.

Contact Strunk at info@strunkaccess.com to learn more about Strunk’s Value Checking strategy. It is very simple to implement and consumers will like the service.

Delaying annual reviews of overdraft programs until the next rule modification or updated guidance can lead to serious and expensive issues. Preventing a problem is almost always simpler and less expensive than trying to fix it. Despite the fact that the most current guidance was issued in 2010, a lot has changed in the overdraft industry since then. The media and lawmakers have been focusing more on overdraft fees, which has brought increased attention to this financial service. Just recently Regions Bank has been fined $191 million by financial authorities for charging ‘surprise’ overdraft fees on debit card transactions and ATM withdrawals. The CFPB announced that Regions Bank “committed unfair and abusive acts and practices when it charged overdraft fees on transactions that had a sufficient balance at the time the Bank authorized the transaction but then later settled with an insufficient balance”. In August, the FDIC issued new supervisory guidance on multiple non-sufficient funds (NSF) fees arising from the re-presentment of the same unpaid transaction, charging a consumer more than one NSF fee for the same declined transaction, without providing proper disclosures.

Financial Institutions should be evaluating these areas on a regular basis. Strunk can help your financial institution reduce risk while offering this important service by using consumer-friendly policies, compliant disclosures with simple, understandable language, and constant, continuing account holder communication. We will provide a thorough analysis of your overdraft program and its disclosures and make recommendations on how to update it to meet current regulatory requirements. Your financial institution will gain greater understanding of program usage as well as practical best practices. Strunk will also provide staff training, consistent communication around the program, correct disclosures and compliance with all regulatory rules. In order to assure the success of your overdraft program, it may be time to rely on an outside expert if limited resources and other projects now demand all of your team’s focus and attention. Don’t put program assessments off and run the risk of being let down.