Regulatory Pressure

Overdraft and NSF fees have always been unpopular with banking regulators. The Consumer Financial Protection Bureau (CFPB) has recently signaled they plan to take action to further regulate overdraft, NSF and other fee practices at financial institutions:

• • December 1, 2021: The CFPB releases research on the banking industry’s reliance on overdraft and NSF fees along with a scathing explanation of how these fees harm consumers. Although the CFPB heavily criticized large national banks, smaller banks and credit union were also called out for a heavy reliance on this type of fee income.

• • January 26, 2022: The CFPB launches an initiative to “Save Americans Billions in Junk Fees”

• • February 10, 2022: The CFPB releases a news article comparing overdraft fees and policies across banks. The article mentions the CFPB’s work is to “ensure that banks continue to evolve their businesses to reduce reliance on overdraft and NSF fees.”

Competition

Possibly in response to increased regulatory scrutiny, many large national banks have been making significant changes to their NSF and overdraft fee practices, including:

• • eliminating NSF fees charged when transactions bounce

• • reducing the size of overdraft fees

• • reducing the number of overdraft/NSF fees charged each day

• • providing or increasing the amount an account can go negative before charging an overdraft fee

• • providing a grace period for customers to bring accounts positive before charging an overdraft fee

• • eliminating “extended” or “sustained” overdraft fees charged when an account is not brought back to a positive balance after a certain period of time

The CFPB has released a table providing a snapshot of large banks’ overdraft and NSF practices, including recent changes.

A Utah Bank Follows Suit

Effective July 13, 2022 Zion’s Bank is changing its overdraft and NSF fee structure by:

• • eliminating overdraft fees charged to accounts in the red for 7 straight days

• • removing NSF fees for transactions returned unpaid due to non-sufficient funds

• • bumping the overdraft cushion from $5 to $30, so a fee will not be charged if an account is overdrawn by $30 or less

Zion’s cites the motivation for the change is to:

• • Become more competitive with “big banks, small banks, online and mobile-first banks, not to mention fintech companies.” Notably, no mention of credit unions.

• • “. . . make banking more accessible”.

Zion’s projects that changing the fee structure will cost the bank $7.4 million each year.

Whether spurred by competition or compelled by future regulation, Utah credit unions are advised to assess their own overdraft and NSF fee practices and make plans to address possible disruptions in those income streams.