My It’s Chilly, Must be the (Over) Draft

My It’s Chilly, Must be the (Over) Draft

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Regulators, consumer activist groups and even some State Attorneys General have raised concerns about certain banks charging excessive fees. Overdraft fees are receiving the most scrutiny at present but maintenance fees have been called-out as well.

Since 2010, Bauer has sounded the alarm over the costs associated with “opting-in” to overdraft protection. The opt-in form, introduced in 2010, once signed, allows your bank to pay a check on your behalf, even if you have insufficient funds. The bank then charges a fee (typically between $10 and $40) for that privilege.

The problem is, some banks have “allegedly” been doing this without the account holder’s signature/consent. This is much more than  spare change. In 2021 alone, estimated overdraft fees charged by U.S. banks for this “courtesy” exceeded $8 billion (JRN 39:04).

With a newly energized spotlight on the topic, though, a number of banks are announcing plans to reduce or eliminate these fees altogether. The largest to date is the $1.7 trillion asset 4-Star Citibank, N.A., Sioux Falls, SD. Citibank is the 4th largest bank in the nation by both assets and deposits. Yet, Citibank charges far less in fees than most of its peers.

In fact, four banks (listed below) account for nearly half (48%) of all itemized overdraft fees and 60% of maintenance fees (see chart below). Yet, when compared as a percent of their respective transaction and savings deposit amounts, the charges at these banks are nowhere near the highest.

5-Star TD Bank, N.A., Wilmington, DE, the worst of the Big Banks, has been scrutinized by the Consumer Financial Protection Bureau (CFPB) for its overdraft practices.

The 51 banks listed on page 7 have the highest percent of overdraft and maintenance  (O&M) fees relative to total transaction and savings deposits (T&SD) of those required to itemize. (Only certain banks with assets exceeding $1 billion are required to itemize.)

5-Star rated First National Bank Texas, Killeen, TX had by far the highest O&M fees in calendar 2021—3.74% of total T&SD. Believe it or not, this is a significant improvement over the 4.32% in 2020. A  combination of a large influx of deposits and (to a lesser degree) a reduction in fees, made this improvement possible. Will it continue to improve? Hard to say. Notice that First NB Texas’s 2021 profit of $55.254 million could have been a loss of as much as $64 million had it not been for the $119.493 million it charged in O&M fees.

5-Star Academy Bank and 5-Star Armed Forces Bank are both owned by Dickinson Financial in Kansas City. The chief operating officer reportedly told the American Banker last summer that the majority of the revenue at these banks comes from lending and not fees. The call reports suggest otherwise.

We consider any attempt to take advantage of our military personnel despicable. And, we have called out Armed Forces Bank many times over the years for just that. Numbers 2 & 3 on page 7, Academy Bank and 4-Star Woodforest NB, The Woodlands, Texas, each operate branches inside Wal-Mart stores in addition to their brick and mortar branches. Sadly, we don’t have access to fees by branch.

5-Star Green Dot Bank, UT is new to this list. Its overdraft income grew from $40,000 at year end 2020 to $50.383 million at the end of 2021. Deposits during that period grew from $2.95 billion to $3.51 billion so some fee growth was expected. But as we have said many times, “opting-in” can be very costly.

Since not all banks are required to itemize we can deduce that banks with a large amount in the total “service charges on deposit accounts” field, which all banks are required to fill out, also have high overdraft fees. One such bank is 5-Star Armstrong Bank, Muskogee, OK. Armstrong Bank did itemize at the end of 2020 and $4.959 million of its total $6.261 million in service fee income was attributed to consumer overdrafts. If we apply that same 79% to the $6.646 total amount it filed at year-end 2021, that would give us $5.25 million putting Armstrong squarely in the upper half of the list on page 7.

Next week we’ll focus on total service fee income so all banks will be represented.

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