How did America’s largest banks, including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C) make over $11 billion from overdraft and NSF fees in 2015? For the first time, the Consumer Financial Bureau has made it easy to understand by providing a detailed analysis of 2015 data.
Banks are required to file quarterly financial statements. These statements are filed with government regulators. The reports are then made public through the Federal Financial Institution’s Examination Council (FFIEC). When searching for them, they are called “Consolidated Reports” or “Call Reports.”
Until last year, banks were able to hide the details about their overdraft and NSF fee revenues. These are several ways banks profit from these types of fees. The bank profited because a customer’s deposit did not make it in on time. Or maybe an account dipped below the $10 minimum and even though a deposit was made the same day, the account still got charged. Understanding how these fees work make an educated consumer better able to navigate the maze of modern-day personal finance.
Prior to last year, banks could hide the information about their overdraft and NSF fees in a broader statement of fees called “service charges on deposit account” or “deposit service charge” revenue. This figure combined monies that were both consumer and commercial. Therefore, what was happening to individual consumers was hidden within the larger commercial figures.
In 2013, the FFIEC required banks to provide more detailed information regarding consumer deposits. Again, this information was to be detailed out in the Call Reports. Starting in 2014, banks holding assets over $1 billion, and which offered consumer deposit accounts along with commercial deposit accounts, were required to report the consumer accounts separately. Consumer checking and savings deposit accounts had to be reported separately form commercial deposit accounts.
By 2015, there was another shift. No longer could fees be totaled together. Instead of lumping all fees connected to consumer accounts together, for example, monthly fees to keep the accounts open totaled along with overdraft and NSF fees, the fees had to be separately defined. The overdraft and NSF fees had to be separated out from other fees or charges. This did not affect credit unions, which report to a different agency called the National Credit Union Administration (NCUA). Credit unions are not required to separately report these fees.
As anyone who has shopped for a bank knows, there is considerable variation between the different overdraft terms and features. There is also variation between how much profit or bank earnings are made from consumer deposits. Hint: if a huge share of the profit is made from a particular bank’s consumer fees, a customer might consider a new bank that does not gouge its customers with fees.
628 reporting banks reported $11.16 billion of these fees last year. While not all of these banks reported under the newest reporting requirements, still, comparisons can be made. Half of the banks received 5.3% or more of their net income from consumer overdraft and NSF fees. Ten percent of the banks received almost 20% of their income from overdraft and NSF fees. The actual figure was 19.8%. Ten percent of 628 banks comes to sixty banks. That means a more significant portion of their income and earnings came from NSF fees and overdraft charges compared to peer banks. Different factors contribute to these fees:
- the size of the bank
- other lines of business conducted at the bank
- average profile of a typical customer
- the amount of individual fees and charges
- account holders’ use or opt-in of overdraft protection for ATMs and debit card transactions
- posting order
- limitations on fees
- cushions before overdraft fees are charged
The Consumer Protection Financial Bureau (CPFB) is considering new protections for consumers. Until they decide what to do, a consumer’s best protection is being educated and knowing how to work intelligently within a bank’s rules, regulations, and fees. Unhappy with your current bank’s fees? Compare today’s rates on a new savings or money market account at Banks.org.