Pedestrians pass by a JPMorgan Chase bank branch in New York.
Michael Nagle | Bloomberg | fake images
The three largest U.S. retail banks collected 25% less overdraft revenue last year as the companies, under pressure from regulators to cap fees, created new ways for customers to avoid penalties.
JPMorgan Chase, Wells Fargo and Bank of America reported a combined $2.2 billion in overdraft fees in 2023, about $700 million less than the previous year, according to regulatory filings.
Overdraft fees are triggered when a customer attempts to spend more than their checking account balance. The fees, which at many banks cost about $35 per transaction, have been a lucrative item for the industry, generating $280 billion in revenue since 2000, according to the Consumer Financial Protection Bureau.
The industry is gearing up for a battle over overdrafts after the CFPB last month unveiled a proposal to limit fees to just $3 per transaction. Banks say overdraft services are a lifeline that helps users avoid worse options like payday loans, while critics, including President Biden, say the fees exploit struggling Americans.
The practice has brought unwanted attention to big banks. During a 2021 hearing, Senator Elizabeth Warren criticized JPMorgan CEO Jamie Dimon over fees. At the time, Dimon rejected his call to refund $1.5 billion to customers.
But even before regulators' recent efforts, banks' profit from overdrafts has been declining. Pandemic stimulus money helped Americans apply fewer tariffs starting in 2020, and then companies like Capital One, Citigroup and Ally voluntarily ended the practice.
Those who maintained the fees, including JPMorgan, limited the types of transactions that trigger penalties, eliminated fees for bounced checks and introduced one-day grace periods and $50 buffers to reduce their frequency.
Bank of America reduced fees from $35 to $10 in 2022.
“Whether people eliminated some fees or dramatically reduced the cost of others, there have been very significant changes here,” said Jennifer Tescher, executive director of the nonprofit group Financial Health Network. “Banks are not only getting rid of overdrafts, they are trying to find more customer-friendly ways to meet their liquidity needs while ensuring they don't become overextended.”
Steady decline
Industrywide overdraft revenue totaled $7.7 billion in 2022, 35% below the 2019 level, according to a CFPB report in May that included all U.S. banks with at least $1 billion in assets.
Recent regulatory filings show the trend continued last year, although JPMorgan and Wells Fargo remain by far the biggest players in overdrafts.
JPMorgan had $1.1 billion in overdraft revenue last year, down about 12% from 2022. Wells Fargo saw a 27% decline to $937 million. Bank of America saw a 64% drop to $140 million.
More than 70% of overdraft transactions no longer incur fees and customers can choose accounts that do not allow penalties, a JPMorgan spokesperson told CNBC. Wells Fargo and Bank of America declined to comment.
“Our customers continue to tell us they want and need access to overdraft protection, which helps them when they are temporarily short of money,” the JPMorgan spokesperson said.
