Lawmakers criticized banks last week for the money they made from overdraft fees. It turns out, however, that overdraft revenue declined in 2020 for the first time in six years.
The reasons? With nowhere to go when COVID-19 hit, many people cut spending. The stimulus money helped them fill their bank accounts. And the banks were also more lenient in waiving fees.
According to financial data firm Moebs Services Inc., financial companies generated estimated consumer overdraft revenue of $ 31.3 billion in 2020, down nearly 10% from the previous year. The number of overdraft transactions in 2020 fell to less than a billion after surpassing that mark for about two decades, Moebs found, and the median fee last year was $ 30.
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The drop in overall fees is another example of how COVID-19 has surprisingly changed consumer credit. At the start of the pandemic, US lenders feared a huge increase in delinquencies. But then the government stepped in by expanding unemployment benefits and stimulus checks, and many people were able to save money and pay off debts. Many banks have also waived some overdraft fees, especially at the start of the pandemic.
Fees of all types are important to bank income, especially in a year when low interest rates reduced loan profitability and loan demand was weak. More people could start racking up overdraft fees when the government’s stimulus measures end.
Executives of major regional banks spoke on recent earnings calls of lower service charges, which include overdraft fees, on deposit accounts. At US Bancorp, for example, first-quarter fees fell 23% from the previous year. At KeyCorp, KEY -0.19% they fell 13%. Bank executives said customers spent less, had higher deposit balances and benefited from the government’s stimulus measures.
Before the pandemic, Chris Tiefel of Toledo, Ohio, had discovered his checking account at Huntington Bancshares Inc. HBAN 0.32% at least once a month. When the pandemic hit, however, he saved money by spending less to eat out. It hasn’t had an overdraft fee since before the pandemic – and it also enjoyed another perk. “I’ve lost about 20 pounds and I’m still losing,” said Tiefel, who is 37 and works in IT.
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In a Senate committee hearing Wednesday with CEOs of U.S. banks, Senator Elizabeth Warren (D., Mass.) Criticized JPMorgan Chase JPM -0.07% & Co. for raising nearly $ 1.00 $ 5 billion in overdraft fees in 2020. “You and your coworkers come in today to talk about how you’ve stepped up and taken care of customers during a pandemic, and that’s a bunch of nonsense,” said Mrs. Warren. CEO Jamie Dimon responded that JPMorgan was waiving on-demand fees for customers stressed out due to COVID-19.
JPMorgan said it waived more than $ 400 million in overdraft fees in 2020 and the first quarter of this year, a fact Mr Dimon referred to in a House committee hearing the following day. The bank reported $ 1.46 billion in overdraft fees last year, down 29% from 2019, according to regulatory documents.
Some banks are introducing more lenient overdraft products and features. PNC Financial Services Group Inc. PNC 0.29% said in April it was launching ‘Low Cash Mode’, which will give virtual wallet clients at least a day to deal with overdrafts before they are billed. . PNC said it has tested the program with nearly 20,000 customers and that the group has seen over 60% drop in overdraft fees.
Fifth Third Bancorp FITB -0.17% has launched Fifth Third Momentum Banking in select locations, which will give clients more time to deposit to avoid overdraft fees.
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Aaron Klein, a senior economic studies researcher at the Brookings Institution, said he believes overdraft receipts will rise again as stimulus checks run out and banks are less willing to waive fees. But he said he “hoped some banks would move away from the product and structure the accounts to treat their consumers more fairly.”
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