Small banks and credit unions chartered in California face an early 2023 deadline to make disclosures — required under a new state law — about how much revenue they generate from overdraft-related fees.
Senate Bill 1415 requires all state-chartered banks and credit unions to report the amount of revenue they generate from fees charged to customers who overdraw their accounts or have transactions rejected because they lack sufficient funds. Gov. Gavin Newsom signed the law in September.
The California Department of Financial Protection and Innovation recently informed institutions it regulates that they have until March 1 to submit the information. The agency plans to release the data in a publicly available report later that month.
Since
Mark Leyes, a spokesman for the California Department of Financial Protection and Innovation, said that the agency "does not foresee that this new reporting requirement will be a significant challenge for our institutions to comply."
He noted in an email that many financial institutions, including national banks, have already begun to reduce or eliminate overdraft charges and nonsufficient funds fees.
The California Bankers Association said in a written statement that it took a neutral position on the new state law. The trade group said that "aside from additional reporting requirements in an already burdensome regulatory environment, banks will be able to comply with the new law."
"We believe that once the data is available it will dispel some negative misconceptions about overdraft and NSF fees," a spokesperson said.
California's new regulatory requirement was passed amid heightened scrutiny of overdraft-related penalties, which research has shown disproportionately affect lower-income consumers.
Before the federal disclosure requirement took effect, banking trade groups
Between 1998 and 2021, average overdraft fees climbed from less than $22 to more than $33, according to research conducted this summer by Bankrate.com. But overdraft fees this year averaged $29.80, which was 11% lower than in the same period last year, Bankrate.com found.
In the early days of the COVID-19 pandemic, some banks waived overdraft fees, and many larger banks subsequently rolled out overdraft reforms.
Aaron Klein, a senior fellow in economic studies at the Brookings Institution, called the new California law an attempt to "spotlight" smaller financial institutions that may be abusing overdraft-related fee policies.
In the worst cases of overdraft-fee abuse, Klein said, lenders have "ceased to be banks" and instead functioned more like "check cashers with a charter."
"We still don't know the full picture of what's going on, because the smallest banks and all credit unions have been exempt from reporting," Klein said in an interview. "California's regulation is a good step forward in letting the public know which banks and credit unions are deep into overdraft."
