It is no secret that overdrafts and overdraft fees are making the news quite frequently these days. This increased attention often puts pressure on community financial institutions specifically, as the articles and reports are often unclear. Questions like, ‘is there something our FI is required to do?’ or more simply, ‘should we be doing something?’ arise.
Most recently, the Consumer Financial Protection Bureau (CFPB) has released a report stating that banks’ overdraft/NSF fee revenue has declined significantly compared to pre-pandemic levels. The CFPB stated that “Bank overdraft/NSF fee revenue was lower in 2020 and early 2021 than before the pandemic, which was likely largely due to pandemic-related stimulus checks pushing up average checking account balances. In the second half of 2021, as the pandemic stimulus wound down, overdraft/NSF fee revenue rebounded somewhat, but began decreasing again through the third quarter of 2022 – likely due to changes in bank policies.”
The CFPB states in their report that they ‘have not observed correlating increases in other listed checking account fees, which suggests that banks are not replacing overdraft/NSF fee revenue with other fees on checking accounts.’ The report identifies the largest banks in the United States, and while those banks can afford these changes, the report fails to review how this will affect community financial institutions.
It is important to understand that the comments in the report are a function of two primary things:
- Consumers have changed their behavior regarding overdrafts because of the pandemic.
- Mega banks chose on their own to drastically cut NSF and OD fees. Those banks have many revenue sources and can afford to be magnanimous, while community financial institutions do not have that opportunity.
Quite possibly the most critical message here is, there is no new regulation and nothing for the community FI to do, for now. Strunk will alert clients if any new rule making is introduced by the CFPB, and thus changes become necessary. Strunk’s overdraft program remains complaint by offering clear and appropriate disclosures, easily accessible reports and ongoing employee training.
Community FIs might still feel the strain of lost revenue and should explore new fee income strategies and profit improvement opportunities with Strunk to get out in front of this challenge. It has never been more important to shift focus and to diversify the ways fee income is produced for the community FI.