Average overdraft price hits 19-year low: Survey

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The average price of a consumer overdraft dropped by 11% this year, according to a new survey from Bankrate.com, as the banking industry continued moving away from the charges amid persistent regulatory pressure.

Though most banks still charge overdrafts, the average fee fell to $26.61 from $29.80 last year, the annual survey found. The fees peaked at $33.58 in 2021.

Larger banks started announcing overdraft reforms that year. Ally Bank eliminated overdraft fees, a move that Capital One and Citigroup would soon follow. Bank of America slashed its fee to $10, and a few regional banks followed suit in reducing the charges.

The cumulative impact of those moves has made the average charge less punitive on consumers who overdraw their accounts, said Greg McBride, chief financial analyst at Bankrate.com. The average price of an overdraft fee is now at a 19-year low.

"The wind is blowing in one direction, and that's for less burdensome fees in the event of an overdraft," McBride said.

Continuing to charge $35, which used to be commonplace, now carries more reputational risk, McBride said.

Biden administration regulators are continuing to pressure banks and cracking down on overdraft policies they see as deceptive. Some banks have moved proactively since they realize "change will be forced upon them," McBride said.

Banking trade groups have pushed back on efforts to impose tougher rules, saying that bank-led innovations are helping consumers, and that overdrafts remain critical for those with unexpected expenses.

Beyond cutting prices, banks have introduced real-time payments, offered grace periods in which they don't charge overdraft fees, introduced new accounts that don't charge the fees and taken other steps to help customers avoid the charges.

"Policymakers should be focused on encouraging more of this innovation, which has occurred without regulatory or legislative innovation, and is poised to yield meaningful savings for years to come," Consumer Bankers Association President & CEO Lindsey Johnson said last year.

The changes made so far have had a modest financial impact on banks. Revenue related to overdrafts fell to $1.6 billion in the fourth quarter of 2022, down 48% from 2019. The Consumer Financial Protection Bureau, which compiled the data, has said it's considering rulemaking on the issue.

Regulatory action is necessary to ensure there is no "backsliding" from the industry, said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending. Among the changes the CFPB should consider is ensuring that the size of overdraft fees are proportional to banks' costs in handling overdrafts, Chabrier said.

The voluntary announcements by banks have "slowed or almost completely stopped" in recent months, she said.

"There needs to be more momentum to move the financial institutions to a better place," Chabrier said, adding that overdraft fees have a disproportionate impact on people of color.

Some banks continue to charge upward of $30 for overdrafts or remain reliant on the charges as a key source of revenue, Chabrier said.

And many banks still haven't scrapped nonsufficient fund fees, though those fees, which get charged on purchases that banks decline because the account lacks adequate funds, have become less prevalent. Large and regional banks have eliminated them entirely. 

Some 91% of accounts still allow overdraft fees, while 70% still have NSF fees, the Bankrate survey found. The Bankrate study looked at 10 banks and thrifts in each of 25 large U.S. markets.

Chabrier argued that the continued prevalence of NSF fees is particularly harmful because consumers don't receive a service in exchange for the charges.

"They charge you for having no money," she said.

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Some banks have pushed back on regulators' crackdown on NSF fees, saying they are legitimate fees that consumers are aware of and agree to when they open a bank account. 

The Minnesota Bankers Association, for example, has sued the Federal Deposit Insurance Corp. in connection with the agency's guidance on NSF fees. The guidance says that the fees can be deemed "unfair" and "deceptive" under some circumstances.

The Minnesota Bankers Association contends that by offering the guidance, the FDIC sidestepped the lengthier and more deliberative rulemaking process.