Overdraft fees have fallen in the Covid-19 economy
Lawmakers criticized banks last week for the money they made from overdraft fees. It turns out, however, that overdraft income fell 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 banks have also been more lenient in waiving fees.
Financial firms reported around $ 31.3 billion in consumer overdraft income in 2020, according to financial data firm Moebs Services Inc., down nearly 10% from the previous year. The number of overdraft transactions in 2020 fell to less than 1 billion after exceeding that bar for about two decades, Moebs found, and last year’s median fee was $ 30.
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 sharp increase in delinquencies. But then the government stepped in with increased 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.
Charges of all types are important to bank revenues, especially in a year when low interest rates reduced loan profitability and loan demand was low. More people could start racking up overdraft fees when the government’s stimulus measures end.
Executives at major regional banks have spoken in recent earnings calls about lower service charges, which include overdraft fees, on deposit accounts. From US Bancorp,
for example, first quarter fees fell 23% from the previous year. At KeyCorp,
they fell 13%. Bank executives said customers spent less, had higher deposit balances and benefited from the government’s stimulus measures.
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Before the pandemic, Chris Tiefel of Toledo, Ohio, was overdrawn on his checking account at Huntington Bancshares Inc.
at least once a month. However, when the pandemic hit, 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 have lost about 20 pounds and continue to lose,” said Mr. Tiefel, who is 37 and works in IT.
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 $ 1.5 billion in overdraft fees in 2020. “You and your colleagues are here today to talk about how you’ve stepped up and taken care of clients during a pandemic, and this ‘is a bunch of nonsense, ”Ms. Warren said. CEO Jamie Dimon responded that JPMorgan waived the on-demand fee 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 next day. . The bank generated $ 1.46 billion in overdraft fees last year, down 29% from 2019, according to regulatory filings.
Some banks are launching more lenient products and features on overdrafts. PNC Financial Services Group Inc.
said in April it was launching “Low Cash Mode,” which will give virtual wallet clients at least a day to deal with any overdraft before they are charged a fee. 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%
launched Fifth Third Momentum Banking in select locations, which will give customers more time to deposit to avoid overdraft fees.
Aaron Klein, a senior economic studies researcher at the Brookings Institution, said he believes overdraft income will rise again as stimulus checks run out and banks are less willing to waive fees. But he said he “was hopeful that some banks would move away from the product and structure their accounts to treat their consumers more fairly.”
Changes in consumer finance
No more WSJ consumer credit coverage during Covid-19, selected by editors
Write to Allison Prang at [email protected]
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