Banks avoiding ‘new normal’ of nixed overdrafts belong to a small and shrinking club

The news: Citigroup said it will eliminate its overdraft fees by this summer, along with charges on overdraft-protection services and returned items.

The bigger picture: The banking giant pointed out that it’s the only top five US bank by assets to ditch the fees.

Citigroup noted that its overdraft-fee revenues have been low compared to its competitors. This suggests the bank won’t take much of an income hit, if any, by ditching the fees.

  • Data from the Consumer Financial Protection Bureau (CFPB) data covering 20 big US banks shows that Citigroup earned just $70 million in overdraft and non-sufficient funds (NSF) revenue for the first nine months of 2021.
  • In contrast, Citigroup’s mega-bank peers garnered considerably more for the period. For example, Wells Fargo earned $1 billion and JPMorgan earned $924 million.

Overdraft alternatives: Some consumers have used overdrafts to get available funds to pay their bills. Banking trade groups recently told the CFPB that a crackdown on the charges could jeopardize people’s abilities to meet their obligations.

However, Citigroup is making its existing overdraft alternatives more appealing to consumers by also waiving related fees:

  • A line for credit called Checking Plus is available for covering account overdrafts.
  • Safety Check lets customers tap into linked accounts to cover their overdrafts.

The bank's other overdraft-avoidance features include low-balance alerts and blocking overdrafts for point-of-sale transactions and ATM withdrawals.

The big takeaway: The number of big US banks that have retail arms but haven’t yet revealed anti-overdraft moves continues to shrink. Those remaining face competitive pressure to follow suit.

Based on the Federal Reserve’s 20 largest banks with retail operations, the dwindling group includes:

  • HSBC, which does have exemptions for per-day amounts and overdrafts with ATMs. It’s in the process of selling some of its retail arm to Citizens, which itself recently revealed an anti-overdraft feature.
  • BMO Harris, which charges overdraft-protection fees.
  • First Republic Bank, which also has fees for anti-overdraft services.
  • KeyBank includes overdraft protection charges that depend on the accounts.
  • MUFG Union Bank, which doesn’t charge for transfers. U.S. Bank seeks to acquire the bank.