Why are banks getting rid of overdraft fees?
Dollar Scholar Questioned Banks If They Are Really Eliminating Overdraft Fees (PHOTO: CNBC)
Overdraft Fees
In checking your bank accounts to see extra fees. An overdraft fee is a penalty imposed by your bank when you make a purchase or payment and your checking account doesn’t have enough money to cover it. Generally, an overdraft fee kicks in when your transaction goes through and your account evolves overdrawn. In addition to overdraft fees, some banks impose nonsufficient funds fees when your bank declines a transaction because there isn’t enough money in your account to cover it. If you write a check for $200 and your account has only $150, a bank might hit you with an NSF fee.
Banks Have Eliminated Overdraft Fees
While banks have made loads of cash from overdraft fees nearly $11 billion in 2021, according to a study from the Financial Health Network several are shifting away from them due to pressure from regulators. NSF and overdraft fees are enormous moneymakers for banks. In 2019, financial institutions got $15.5 billion in NSF and overdraft fees from their clients. Even at the height of the pandemic in 2020, when many banks suspended their NSF/overdraft policies to support folks through the economic downturn, raked in a mind-blowing $8.84 billion from the payments.
Hence, several banks are changing their overdraft rules. The fees have had a lot of fair scrutiny recently that coupled with federal and state regulators taking a new look at overdraft fees. The trend is very much based on fact. While the study shows only 9% of accounts are frequent offenders pointing out they overdraft 10 or more times a year, that segment of the population generates nearly 80% of all overdraft revenue. Black, Latino, and young consumers tend to get hit especially hard.
One of the most undesirable aspects of overdraft fees is that they pile up. They’re often also impacted by transaction reordering, wherein a bank rolls around the order of my payments to maximize the amount of money to cough up. Also, if you don’t want to risk overdraft fees at all, you can opt out of your bank. But know that your card may be rejected if you try to use it without sufficient funds in your account.
Banks are distancing themselves from overdraft and NSF fees largely because of public stress and the threat of regulation.
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