The Biggest Bank Yet Just Announced It's Ending Overdraft Fees
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Another bank is eliminating overdraft fees — and this time, it's one of the biggest banks in the U.S.
By summertime, Citigroup, the owner of Citibank aka Citi, will follow the moves of other banks by completely getting rid of overdraft fees, as well as overdraft-protection and non-sufficient funds (NSF) fees. The new policy would make Citi the largest U.S. bank thus far to nix such fees, which are charged when a customer doesn't have an account balance high enough to cover a transaction.
Citi’s decision comes amid pressure from competing banks and from a federal watchdog agency.
The Consumer Financial Protection Bureau (CFPB) recently announced that it's cracking down on banks that are "heavily dependent" on such fees. The agency launched an initiative last month that encourages consumers to lodge complaints about the worst “junk fees” they’ve encouraged at financial institutions, including banks, credit unions and credit card companies.
"Junk fee" is a broad term that includes charges that were excessive, unexpected or confusing. NSF and overdraft fees certainly fit the bill.
A recent CFPB report shows that banks rake in billions of dollars from these kinds of fees. In the first nine months of 2021 alone, Wells Fargo made $1 billion, JP Morgan Chase made $924 million, and Bank of America made $823 million in revenue from NSF and/or overdraft fees. Several other large banks made hundreds of millions off the fees as well.
During that same period of time, Citi made $70 million.
Bank fees: Overdrafts, NSF fees, overdraft protection
Recently, several other major banks have announced changes to their NSF and overdraft-related fees. But not all of them are eliminating the fees entirely, and distinguishing what fees remain and when they are charged can be confusing.
For example, this month Bank of America is beginning to reduce some of its NSF and overdraft fees. The bank said it will first eliminate its NSF fees in February and its overdraft-protection fees in May. That same month, the bank will also reduce its overdraft fees from $35 to $10.
Each fee is slightly different:
- An NSF fee is basically a bounced-check fee. It is charged when you overdraw your checking account, your bank does not honor the transaction and you incur a fee for not having enough in your account.
- An overdraft fee is one in which you overdraw your account and your bank allows the transaction to go through anyway — charging you a fee for the service in the process. Both NSF and overdraft fees are typically around $30 to $35.
- An overdraft-protection fee is essentially a money transfer fee that costs less than a typical NSF or overdraft fee. In this case, you overdraw one of your bank accounts, but you have an overdraft-protection service that automatically transfers funds from a separate account. The fee covers the transfer of funds.
Citi says it is eliminating all three of these fees by this summer. Likewise, Capital One is getting rid of all three fees for consumer banking customers "in early 2022."
Figuring out exactly how these new policies will play out in real life is often not simple. For Capital One's program, customers will have the option to enroll in a no-fee overdraft account if they aren't already. Customers who don't take action will simply have a transaction declined if it exceeds their available balance, and no NSF fees will apply.
As for Citi, spokesperson Karen Kearns confirmed to Money that once the new overdraft polices are in place, ATM withdraws and debit transactions that would bring the account balance below zero won't be authorized by default, thus avoiding the overdraft altogether. When it comes to other money transfers or checks that would overdraw the account, things get more complicated. Citi says that it may or may not allow the account to be overdrawn, depending on the circumstances.
Back in June 2021, Ally was among the largest trendsetters, announcing it would remove overdraft fees for all accounts, effective immediately.
Some institutions, such as Axos Bank, Discover and Betterment, partially ended overdraft fees, but only for certain types of checking accounts. Synovus, PNC and Citizens have all recently reduced, but not removed, overdraft fees.
The National Consumer Law Center, the Center for Responsible Lending and other consumer groups have long railed against overdraft fees, saying the fees cause families “severe financial distress in the best of times,” and that the pandemic has only pronounced that effect.
Now with one of the largest banks in the U.S. on board with the trend, overdraft fees might soon become a thing of the past.