Here's how banking will evolve amid the 'death' of overdraft fees, according to J.D. Power
Shift away from overdraft fees could improve consumer satisfaction and financial health, company says
Banks are increasingly reducing or fully eliminating overdraft fees. New research from J.D. Power reveals what that will mean for the banking industry.
Many top U.S. banks have begun eliminating their overdraft fees on checking and savings accounts, a move that data analytics company J.D. Power says will shift the banking industry toward a more customer-centric strategy.
Over the last few months, Capital One eliminated its overdraft fees and Bank of America reduced its fees for when account balances drop below $0. Smaller institutions, like University Credit Union, have begun slashing their fees as well.
"Recent moves by Ally, Capital One and Bank of America to abandon or dramatically lower overdraft and other fees are the latest in a series of significant moves retail banks have made to adjust their strategies in line with the evolution of the marketplace," J.D. Power stated in an article published by the company. "The decision to move from a punitive, carrot-and-stick approach suggests that retail banks are recognizing that the role they play in their customers’ lives needs to evolve beyond service provider and into more of a hub of financial advice and guidance."
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EXPERTS SAY CFPB CUTTING OVERDRAFT FEES COULD HURT CONSUMERS
Americans are looking to banks for financial guidance
About 81% of customers say they feel strongly that banks are in a position to help them improve their financial health, according J.D. Power's Financial Health and Advice Program. According to a June 2021 press release by the company, satisfaction also grew by 229 points on a 1,000-point scale when customers were offered advice or guidance that met their needs.
"Our data shows that retail bank customers are more than twice as likely to switch banks if they’ve been charged a fee of any kind at any point over the last three months versus customers who have not been charged any fees," J.D. Power stated. "Across every metric – customer satisfaction, Net Promoter Score (NPS), customer engagement – punitive bank fees have a significant negative influence on customers’ relationships with their banks."
J.D. Power’s research found that banks are beginning to recognize this trend, spurring an initiative to lower fees or eliminate them.
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CAPITAL ONE ELIMINATES OVERDRAFT FEES, CFPB INVESTIGATES UNIVERSALLY ENDING THESE ‘ABUSIVE’ CHARGES
CFPB considers ending overdraft and non-sufficient funds (NSF) fees
Financial regulators are becoming increasingly critical of overdraft fees, and could end their usage before banks eliminate them individually. In December 2021, the Consumer Financial Protection Bureau (CFPB) conducted a study on overdraft and NSF fees, calling the charges "abusive." The study stated that banks have become increasingly reliant on overdraft and NSF revenue, which the CFPB said reached an estimated $15.47 billion in 2019.
Additionally, three of the top banks in the U.S. — JPMorgan Chase, Wells Fargo and Bank of America — brought in 44% of the total.
Some trade associations are now urging the bureau to take action again these fees, although not everyone agrees they're detrimental. The American Bankers Association (ABA), Consumer Bankers Association (CBA), Credit Union National Association (CUNA), National Association of Federally-Insured Credit Unions (NAFCU) and National Bankers Association (NBA) wrote a letter to the CFPB, urging it to gather more information before making any decisions. The organizations encouraged the bureau to investigate the reasoning for overdraft fees and if consumers wanted to keep them in place.
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