- January 2022 was a “watershed moment” for overdraft reform and credit accessibility in the U.S., according to an article published this week by the Pew Charitable Trusts.
- Four of the nation's seven largest retail banks — Bank of America, Wells Fargo, U.S. Bank and Truist (along with Alabama-based Regions Bank) — unveiled changes to their overdraft policies in that month.
- Each of those banks offers — or has recently announced plans to offer — affordable small loans to consumers, which Pew estimates could also save borrowers more than $2 billion per year, collectively.
“Historically, overdraft programs were marketed as helping people who live paycheck to paycheck prevent important transactions from being declined, but this high-cost option does not effectively address the needs of most consumers who need time to repay in installments,” analysts at Pew wrote Tuesday.
Instead of overdrawing an account and incurring an overdraft fee, consumers looking to borrow a small sum of money may be better served with a small loan offering, they said.
Three of the banks Pew cited this week — Wells Fargo, Truist and Regions — recently announced new small-loan offerings that seek to address a gap left behind by overdraft reform.
Wells will offer an installment loan up to $500, Regions is launching a $500 line of credit, and Truist will offer a $750 line of credit. Bank of America and U.S. Bank already offered such small loans.
“Concerns about providing liquidity for consumers should be met with actual small credit, rather than overdraft policies that lead to penalty fees," the Pew analysts wrote. "January’s developments prove that scenario is becoming an industry norm."
Still, some argue that overdraft is a crucial service that benefits consumers. “A majority of consumers who use the product do so knowingly and appreciate the flexibility it provides as one of the few short-term liquidity options remaining in the well-regulated, well-supervised banking industry,” the Consumer Bankers Association (CBA) said in a press release Thursday, adding that “more than two-thirds of consumers say they don’t want to lose access to the service.”
One after the other, a succession of banks in recent months announced plans to scrap non-sufficient fund (NSF) fees and some overdraft charges.
Ally Bank decided to eliminate overdraft fees in June 2021. Capital One followed suit in December, becoming the largest bank in the country to ditch the fees.
Bank of America on Jan. 11 said it would reduce overdraft fees from $35 to $10, as well as eliminate NSF and certain transfer fees.
Later that day, Wells Fargo also announced plans to eliminate NSF fees and transfer fees, and implement a 24-hour grace period before charging an overdraft fee.
U.S. Bank stopped charging certain NSF fees Jan. 3 and, later that month, announced plans to raise — to $50 from $5 — the amount an account can overdraw before a fee is charged.
Truist on Jan. 18 unveiled two new personal checking accounts without overdraft fees the bank plans to launch this summer. The bank also said it would eliminate returned-item, negative-account-balance and overdraft-protection transfer fees in the near future.
Banks' pivot away from overdraft fees has continued into February. M&T Bank this week announced it is reducing the overdraft fees it charges from $36 to $15.
TD on Feb. 1 said it will let customers overdraw their accounts by up to $50 without charging a fee, beginning this year. The bank also is introducing low-balance alerts and a 24-hour grace period, and will eliminate a fee it charges when customers with overdraft protection transfer money from their savings account.