Banks need to move past ‘gotcha’ overdraft fees, PNC chief Demchak says

The CEO of one of the largest U.S. banks acknowledged Monday that the industry will need to abandon complicated overdraft fees, even as a prospective Joe Biden administration is expected to put more controls on how these charges are applied.

Discussions around overdraft charges have "picked up” since many banks have waived the fees during the coronavirus pandemic, PNC Financial Services Chairman and CEO William Demchak said during remarks at a conference hosted by Bank of America.

“We're going to have to get back to charging basic fees for basic products and be less reliant on some of the gotcha fees that historically have supported the industry,” Demchak said. “I think that trend probably accelerates.”

Deposit service charges at banks, including overdraft fees, they remain well below pre-pandemic levels, as high levels of deposits and cautious spending habits have limited the frequency of actions that typically lead to charges.

Several banks have come under fire for how overdraft fees are charged when account holders conduct a transaction for more than what’s on deposit.

The $145 billion-asset Regions Financial in Birmingham, Ala., is under investigation for its overdraft policies. And the $383 billion-asset TD Bank agreed in August to pay $122 million to settle charges from the Consumer Financial Protection Bureau of misleading customers who opened an account about the possible fees.

Banks take in an estimated $11 billion in overdraft fees each year from a relatively small percentage of total account holders. The CFPB last year opened up a review of the Federal Reserve’s 2009 overdraft rules, which among other requirements force account holders to opt in to the service.

A CFPB under the oversight of a director appointed by President-elect Joe Biden could establish other changes like limits on how many fees can be assessed in a single day and tougher rules on how transactions are ordered. The objective wold be to limit when an account goes negative.

Some new products, such as Wells Fargo’s Clear Access account, come with monthly fees in lieu of charges for overdrafts. Demchak said PNC has a similar offer, which is likely to become more prevalent across the industry as banks that suddenly find themselves flooded with deposits may not shun monthly fees so aggressively.

“The notion of charging a known fee for a basic service is something banking is going to have to get their arms around, particularly in a low-rate environment where there's massive liquidity,” Demchak said.