Nothing jerks like a little pressure from turnout disruptors and regulators. Bank of America on Tuesday became the latest financial institution to cutting fees associated with returned checks. Such levies have for years been a small but steady form of supplementary income for banks plagued by flattened interest rates.
Yet the fees hit the most vulnerable members of society the hardest. There has been an explosion in the number of fintech groups and digital challenger banks that prefer to avoid the standard practices of incumbents. Banks like BofA had little choice but to go along.
According to data from Jefferies, banks earn an average of 1.4 percent of their annual income from reimbursed check costs. There are two types. Overdrafts refer to a bank that covers the shortfall of a check. Inadequate fund levies occur when overdrafts do not apply. Bank of America will eliminate NSF fees while reducing the cost of overdrafts from $ 35 to $ 10.
It is not surprising that regional banks are more dependent on account fees than Wall Street banks with broader businesses. Regions Financial, a bank headquartered in Alabama, earns nearly 5 percent of its revenue from overdraft fees. Wall Street banks are moving closer to the average.
But it all comes together. The fees just brought in more than $ 15 billion in 2019, according to the U.S. Consumer Financial Protection Bureau. That dropped from $ 40 billion a decade earlier. BofA itself says that its overdraft revenue will approach zero this year.
Banks once justified such fees as the cost of lending to customers to cover overdraft accounts. Yet a handful of repeat customers, according to government research, actually bore the fees. These clients relied on overdrafts as short-term financing that were not available elsewhere.
Online fintech banks flush with venture capital offered higher savings account interest rates but also lower overdraft fees. BofA must remain competitive. Pressure from the US Treasury has helped in this regard. This has forced banks to recognize their crucial social function as financial intermediaries to the wider public.
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