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FOS Blog

07 Mar
2022

What’s the Deal with Fees?

What’s the Deal with Fees?

Recently, there seems to be a lot of chatter coming from regulators about fees. So, what’s up with that?

It started with Overdraft Fees. In December 2021, the CFPB blogged that banks are deeply dependent on overdraft fees. Rohit Chopra, CFPB Director, cited “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model…We will be taking action to restore meaningful competition to this market.” NSF fees are reported on Call Reports and by scouring that data, the CFPB estimates that overall market revenue from overdraft and NSF fees was $15.47 billion in 2019.  The more astounding statistic is that close to two-thirds of fee revenue for banks was from overdraft fees.  This issue is further irritated by the fact that under 9% of consumer accounts are paying 10 or more overdraft fees per year, accounting for close to 80% of all overdraft revenue.

And then the OCC jumped on the bandwagon when Acting Director, Michael Hsu, delivered a speech to the Consumer Federation of America’s 34th Annual Financial Services Conference (12.8.21).  The difference was that he was promoting solutions like accounts that don’t allow overdrafts such as the “Bank On” Account recommended by the Cities for Financial Empowerment.  He concluded with recommendations for banks to modify their overdraft programs to support the financial health of its customers (and prevent consumer harm) by

  • Requiring consumer opt-in to the overdraft program.
  • Providing a grace period before charging an overdraft fee.
  • Allowing negative balances without triggering an overdraft fee.
  • Offering consumers balance-related alerts.
  • Providing consumers with access to real-time balance information.
  • Linking a consumer’s checking account to another account for overdraft protection.
  • Collecting overdraft or NSF fees from a consumer’s next deposit only after other items have been posted or cleared.
  • Not charging separate and multiple overdraft fees for multiple items in a single day and not charging additional fees when an item is re-presented.

To add to the fee discussion, the CFPB put out a RFI (Request for Information) for anyone to comment on Junk Fees.  They want to know about fees a person thought were already covered, unexpected fees, fees that seem too high, and fees that were unclear.  This focus is on a much broader spectrum including deposit accounts, credit cards, remittances and payments, prepaid accounts, mortgages and other loans (student and payday loans).  Select questions have been included but they are particularly focused on exploitative, back-end, hidden, or excessive fees.

So, what’s the messaging here for banks?

Maybe it’s time to review not only the fees but the methodologies and reasonableness behind the fees that your bank charges for loan and deposit services.  Look at fee trends for your bank over the last 3-5 years for various fees.  Have they had the effect you desired?  Don’t just look at how competitive they are and justify them because that’s what others are doing.  Review “customer harm” and whether they are really a deterrent to consumer behaviors.  What incentive could be offered for positive behavior?  Regardless of where you are, bank fees are going to be the new “UDAAP” issue!

For additional information contact the author at edehmey@fosaudit.com.