Months after launching a formal review of overdraft practices, the Office of the Comptroller of the Currency is providing more clarity about the types of changes it would like to see from banks.
In a speech Wednesday, acting Comptroller Michael Hsu identified eight practices that he said promote consumer financial well-being, as well as greater income and wealth equity. Among the suggestions: Providing a grace period before charging an overdraft fee, making changes to posting practices and refraining from charging multiple overdraft fees in a single day.
Hsu said that overdraft programs have morphed over the years into vehicles that promote inequality, but he praised the reforms that many banks have recently made.
“Overdraft programs are changing, and the outlook for meaningful reform is promising,” Hsu said at a conference hosted by the Consumer Federation of America.
Just hours before Hsu’s address, JPMorgan Chase announced a pair of changes that figure to impact its overdraft-fee revenue. Starting next year, the largest U.S. bank by assets will give customers an extra business day to avoid overdraft fees and will make direct-deposited payroll funds available up to two business days early.
Pressure to reform bank overdraft practices has been mounting for some time. But those efforts took on an air of greater urgency as the pandemic had a disproportionate impact on communities of color and civil unrest swept the nation in the months following the May 2020 murder of George Floyd.
Democratic lawmakers have been vocal advocates for reform. Sen. Elizabeth Warren, D-Mass.,
Like the OCC, the Consumer Financial Protection Bureau has been sending signals to banks about the need to make changes. Last week, CFPB Director Rohit Chopra said the bureau would
Large financial institutions should expect enhanced supervision and enforcement scrutiny of overdraft and nonsufficient-funds fees, Chopra said at the time. The bureau also may issue policy guidance outlining what overdraft practices it considers to be unlawful, he noted.
In August, Hsu told the Senate Banking Committee that the OCC had undertaken a review of banks’ overdraft practices. During a hearing, he described an inter-agency effort to address what is known as the “$35 coffee” problem, which arises when consumers make small-dollar purchases that cause overdrafts and lead to large fees.
“Excessive fees on overdrafts, predatory lending, high-cost debt traps — all these things should be prohibited. They don’t have a place in the federal banking system,” Hsu told the committee during the Aug. 3 hearing.
The practices that Hsu described Wednesday are already in place at some banks, but they are not standard across the industry.
The list includes: providing a grace period before charging an overdraft fee; allowing negative balances without triggering fees; offering balance-related alerts; and providing real-time balance information.
Also on the list of banking practices praised by the acting comptroller: linking checking accounts to other accounts as a means of offering overdraft protection; collecting fees from a customer’s next deposit only after other items have been posted or cleared; and not charging multiple overdraft fees for separate purchases in a single day.
Capital One Financial, which recently
“Promoting consumer financial health through responsible and fair products can be good business,” he said. “The practices associated with these products are often consistent with sound risk management, and designing and offering these products can help financial providers better serve their existing customers and acquire new ones.”
The list of banks that are likely to collect less overdraft fee revenue as a result of policy changes they have announced this year
JPMorgan Chase made one set of changes to its overdraft practices earlier this year. The $3.8 trillion-asset company expanded its overdraft cushion from $5 to $50, which means that customers do not incur fees until they overdraw an account by at least $50.
JPMorgan also eliminated a fee that customers incurred if the bank didn’t pay a check or make an electronic payment on the customer’s behalf because of insufficient funds in the account.
On Wednesday, when JPMorgan Chase announced the latest changes to its policies, the company gave no indication that it plans to go as far as Ally and Capital One.
Jennifer Roberts, CEO of Chase Consumer Banking, said that enabling overdrafts can yield benefits for consumers.
“With overdraft, we help our customers avoid late fees and potential negative impacts to their credit score, and with debit card coverage customers can continue making purchases with their debit card,” she said in a press release.
