There are two sides to every story. And when it comes to banks making money, there are critics (thus, the two sides) … and, inevitably, controversy follows.
As an example, on Wednesday (May 26) at a Senate hearing, Sen. Elizabeth Warren (Democrat of Massachusetts) had an exchange with Jamie Dimon, CEO of J.P. Morgan, which touched on overdraft fees. Those are the charges that banks levy when withdrawals exceed the balance held in the account. The bank covers the shortfall and charges a fee for that service.
As reported by Reuters, the senator was critical of the bank executive, as J.P. Morgan garnered $1.5 billion in overdraft fees in 2020. All told, the largest banks in the industry – J.P. Morgan, Bank of America, Citi and Wells Fargo – reaped about $4 billon in overdraft fees in the year. Warren said that banks’ assertion that they’d helped their customers in the midst of the pandemic amounted to “baloney.”
Late last year, Bankrate reported that the average fee for non-sufficient funds (NSF) — i.e., overdraft fees — rose 0.3 percent to $33.47. “That’s an increase of 11 cents compared to last year, and the highest it’s been in the 23-year history of this annual study,” the outlet reported.
As reported in this space earlier in the year, roughly 30 percent of accounts have at least one overdraft fee per year. On the one hand, fees are in large part a charge for the convenience of getting bills paid, and some of those fees can be funneled into new product/service development. But the overdraft issue also speaks to the friction inherent in check writing and bill payments, and in the mismatch between cash flow and financial obligations. In at least some cases, banks are rolling out new ways to approach overdrafts.
PNC Executive Vice President and Head of Retail Customer Segments and Deposits Bonnie Wikert told PYMNTS that PNC offers products like smart access checking that simply do not allow overdrafts as an option. As stated during the interview, once the consumer is about to spend more than they have, the charge will simply be rejected. The choice of whether to complete the transaction is left directly up to the customer.
“We believe that this sets us apart from the industry as a payment control feature,” Wikert said. “We actually reveal the transactions that are causing the customer to overdraw their account and give them the ability to make decisions as to whether or not they want to pay those items, or if they want those items returned. So, we are really revealing that to customers and giving them the control to make the decisions.” If they decide to have PNC cover items, there is a fee. But if they “cure” the overdraft within a set timeframe, the fee is waived.
Elsewhere, having to pay, say, the cable bill on the 20th when paychecks come twice a month can stretch things a bit thin. Faster funds — and the ability to set payments (with bill presentment), along with the ability to gain access to wages as they are earned — can help solve the cash crunch (and sidestep overdrafts).