These 10 banks are rethinking overdraft fees. Here's why and how.

Since President Biden took office in January, several U.S. banks have announced major business changes that will reduce the amount of revenue they generate from overdraft fees.

Other banks have indicated that they are reconsidering the fees, which have long been a key pillar of fee income despite persistent criticism from consumer advocates.

The recent changes, which are being led by regional banks, range from eliminating overdraft fees altogether to introducing new products that will offer less expensive options to customers who live paycheck to paycheck.

These moves could be bellwethers for an industry that is under pressure to change. They are coming as overdraft-free startups continue to lure customers away from traditional banks. They are also occurring at a time when Biden administration officials — and particularly the new leadership at the Consumer Financial Protection Bureau — are expected to take a tougher stance on overdraft fees.

“Overdrafts have the potential to be very costly for consumers, and we are continuing to monitor market activity in this area,” a CFPB spokesperson said in a statement.

In the years before the COVID-19 pandemic, the amount of money that banks collected from overdraft fees remained fairly steady, hovering around 5% of fee income. But last year the revenue cratered, partly as a result of government stimulus programs that padded consumers’ bank accounts, and partly because some banks waived fees in anticipation of widespread economic hardship.

In 2020, banks that reported the data to their regulators collected $8.82 billion in overdraft-related revenue, a 24.5% decline from 2019, when those banks raked in $11.68 billion. Some industry executives have recently warned investors that they do not expect the revenue generated from overdraft fees to recover.

What follows is a look at 10 banks that are, to greater or lesser degrees, reconsidering overdraft charges.

Ally Bank

Ally Financial

Detroit-based Ally announced in June that it would permanently stop charging overdraft fees. The calculus was fairly easy for the $182 billion-asset company: Overdraft fees account for a fairly thin sliver of income, consumers don’t like them, and the burden that they impose falls hardest on those who can least afford to pay them.

In announcing its decision, Ally cited research showing that the lion’s share of overdraft fees are paid by people living paycheck to paycheck, and they disproportionately fall on people of color.

“Overdraft fees are a pain point for many consumers but are particularly onerous for some. It is time to end them,” CEO Jeffrey Brown said in a press release. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up.”

Ally has long been far less reliant on overdraft fee revenue than many other large and midsize banks. Before the company eliminated the charges, it recorded about $1 million in overdraft fee revenue in the first quarter, which was equal to about one-tenth of one percent of its pre-tax income from continuing operations during the quarter.
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PNC Financial Services Group

This spring, PNC introduced a digital service that tells account holders when their balances are low and gives them at least 24 hours to halt transactions or deposit more money in order to prevent overdraft fees.

The Pittsburgh-based company began rolling out the product, which is known as Low Cash Mode, in April. Chairman and CEO William Demchak said that modern payments technology enabled its development.

“Banking in a batch process mode, people didn’t actually know what they had in their account,” he said last month during an industry conference. “And they’d get into an overdraft situation, and then it would grind on and get worse and they’d ultimately be charged off. To fix that, we had to create a real-time world … where in the moment, you actually knew exactly what was going on in your account.”

PNC expects Low Cash Mode to help customers avoid $125 million to $150 million in overdraft fees each year. The $560 billion-asset company collected about $273 million in overdraft fees in 2020, down from more than $412 million in 2019, according to data reported to its regulators.

The introduction of Low Cash Mode will reduce PNC’s fee income, but the company has said that the loss is already baked into its 2021 revenue outlook.

Demchak signaled the company’s direction on overdraft fees last November when he said that banks are “going to have to get back to charging basic fees for basic products and be less reliant on some of the gotcha fees that historically have supported the industry.”
Signage is displayed outside a Toronto-Dominion Canada Trust bank branch in Vancouver.

TD Bank

TD, which has relied more heavily on overdraft fee revenue than many other banks, announced last month that it is making changes to its policies starting in August.

The bank will raise the threshold below which a transaction cannot trigger an overdraft fee to $10 from $5, and it will decrease the maximum amount of overdraft fees per day to three from five, a spokesperson said. The changes will apply to all existing customers with personal deposit accounts.

The changes will come a year after TD Bank reached a $122 million settlement with the CFPB, which said that TD deceptively charged overdraft fees for certain ATM and one-time debit card transactions. The $412 billion-asset U.S. arm of TD Bank Group in Toronto did not admit to any wrongdoing as part of the civil settlement.

TD Bank is also planning to launch a no-overdraft account in August, joining the list of institutions that offer accounts certified by the Bank On initiative, which is working with banks to launch low-cost deposit accounts. Customers will have no minimum daily balance requirements and will not be able to overdraw their accounts, the bank said.

"TD's goal for this new account offering is to help our customers establish a more secure, inclusive and sustainable financial future for themselves, their families and their communities,” Alissa Van Volkom, TD Bank’s head of consumer deposits, products and payments, said in a press release.
Regions Bank
Gary Tramontina

Regions Financial

Birmingham, Alabama-based Regions, another bank that has historically relied relatively heavily on overdraft fee revenue, announced last month that it will soon make changes.

Regions plans to revise the order in which it posts transactions so that debits and withdrawals will generally be processed in the order in which they were made, regardless of whether the customer paid by check, debit card, wire or another method.

The move is part of a multiyear effort to help customers gain better control of their finances, Chairman and CEO John Turner said. But it also stems from a realization that overdraft fees at the $153 billion-asset company are slipping. During the pandemic, customers built up more cash as a result of stimulus checks and other assistance.

“Part of the reason we've been signaling we don't expect those levels of fees to come back up is because of the changes we are making internally to benefit customers,” Turner said.

Regions is one of a number of banks that have been recently investigated by the CFPB in connection with their overdraft practices. In November, the company disclosed in a regulatory filing that it was in the process of responding to a civil investigative demand from the consumer bureau over overdraft policies, and that it was cooperating with the inquiry.
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Christopher Dilts/Bloomberg

Fifth Third Bancorp

In May, Cincinnati-based Fifth Third launched a low-cost deposit account designed to help customers avoid fees and get their paychecks faster.

The $207 billion-asset bank said that it will give customers extra time to replenish balances before an overdraft hits, faster access to direct deposits and cash advances against future direct deposits. It will also charge no maintenance fees for its Momentum Banking checking or savings accounts.

Fifth Third executives have said that they hope the move will build customer loyalty, ultimately translating into greater sales of other products and services, and outweighing any decline in fee income.

“We're giving the consumer the widest possible range of options to avoid fees. We're getting the benefit of that in the form of household growth and of primacy, which is the entry point for us to the broadest range of products and services that we offer,” President Tim Spence said during remarks in April.
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Huntington Bancshares

Last month, Columbus, Ohio-based Huntington announced a line of credit designed to help customers avoid overdraft fees. Customers can borrow up to $1,000, and are not subject to interest charges or fees as long as they enroll in automatic payments. No applications are necessary.

“If you’re in a pinch, this is like a godsend,” Huntington Chairman and CEO Stephen Steinour told American Banker in an interview at the time.

The bank, which has about $175 billion in assets after its recent acquisition of TCF National Bank, has projected it will lose about $1 million per month in revenue because of the product. But it also is anticipating that new customers attracted by the service will make up for a significant chunk of those losses.

“There’s a short-term give-up for long-term gain, and we’re willing to make that trade-off,” Steinour said.

The Standby Cash option comes on top of a 24-hour grace period the bank has long offered to customers to avoid overdrafts, as well as a “$50 Safety Zone” that prevents penalties on overdrafts below that amount.
Frost

Cullen/Frost Bankers

Cullen/Frost in San Antonio announced in April that it is making changes to help customers avoid overdraft charges.

The $42.4 billion-asset company plans to waive fees on transactions of up to $100 that take customer balances into negative territory. Customers must set up a monthly direct deposit of $500 to qualify for the offer.

Jimmy Stead, chief consumer banking officer at Frost Bank, said in April that the offer “is an effort to do what’s right for our customers and help build long-term relationships with them, not as a result of regulations.”

Cullen/Frost’s $28.8 million in overdraft fees last year were down by 22% from 2019.
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Scott Eisen/Bloomberg

Citizens Financial Group

Citizens in Providence, Rhode Island, has not announced any plans to reduce overdraft fees. But executives at the $187 billion asset-bank are reevaluating the product.

Overdraft fees have been on the decline, mainly because Citizens’ customers were flush with cash from stimulus checks, Chief Financial Officer John Woods said at an industry conference in mid-June.

Woods said that he believes Citizens’ customers generally “understand that product extremely well” and that it’s important for some of them to have that option.

But he added: “I think it's an area that we're going to look at and evaluate and analyze whether there are tweaks that we can make to those practices over time to align with what the expectations are of our customers and our other stakeholders.”
A man uses a Wells Fargo ATM inside a branch in New York.
Eric Thayer/Bloomberg

Wells Fargo

San Francisco-based Wells Fargo said in May that it will increase outreach to consumers about its no-overdraft-fee Clear Access Banking account.

The bank launched the account last fall and opened more than 500,000 of them by March 31, a spokesperson said. The account has a $5 monthly maintenance fee and meets the Bank On standards.

The expanded outreach efforts are part of a broader banking inclusion initiative from the $1.9 trillion-asset Wells, which is embarking on a 10-year effort to help reduce the number of unbanked Americans.

“We recognize the high number of unbanked households is a complex and long-standing issue that will require gathering the best minds, ideas, products and educational resources from across our communities to bring about change,” CEO Charlie Scharf said in a May press release.
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Associated Banc-Corp

Green Bay, Wisconsin-based Associated has had discussions about making changes to overdraft fees, new CEO Andrew Harmening said in a recent interview, though he added: “We haven't come up with a final view of what that could look like."

The $34.5 billion-asset company collected $18.6 million in overdraft fees last year, down 24% from 2019, according to regulatory data.

Now is a logical time for banks to reconsider the overdraft model, Harmening said, since more customers are accessing banking services through mobile apps, where it’s easier to monitor their accounts.

“It's a conglomeration of the pandemic, the usage of mobile, the underlying need for liquidity all kind of coming together at the same time,” he said.
Correction
An earlier version of this article relied on comments by Regions Financial Chairman and CEO John Turner that mischaracterized the change in transaction posting order that the company is planning to make. Regions has already been posting credit before debits, but Turner’s remarks wrongly suggested that the firm planned to make that change soon. The change that Regions is planning instead involves modifying the order in which various kinds of debits or withdrawals get processed.<br/>
July 29, 2021 10:05 AM EDT
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