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JPMorgan, Wells Fargo reduce overdraft fees as government pressure increases

By Jake Beardslee · February 9, 2024

In brief…

  • Overdraft fee revenue at major U.S. banks dropped 25% in 2022 to $2.2 billion
  • JPMorgan Chase, Wells Fargo and Bank of America reduced fees under pressure from regulators
  • CFPB proposed rules would limit overdraft charges to $3 per transaction
  • Banks say overdrafts help customers avoid payday loans but profits are declining
  • Major banks have introduced changes to reduce frequency of overdraft fees
Under pressure from regulators, the three biggest U.S. banks dramatically cut overdraft fee revenue in 2022 by voluntarily reducing the costly penalties long criticized as predatory.  Tdorante10/Wikimedia

Overdraft fee revenue at the three largest U.S. banks - JPMorgan Chase, Wells Fargo, and Bank of America - plummeted 25% last year to a combined total of $2.2 billion, according to recent regulatory filings. This drop of roughly $700 million from 2021 comes as banks face mounting pressure from regulators and lawmakers to eliminate or drastically reduce overdraft charges that consumer advocates have long criticized as predatory, according to CNBC.

Overdraft fees, typically around $35 per transaction, are incurred when customers overspend their checking account balances. While a significant profit center for banks, generating $280 billion since 2000 per the Consumer Financial Protection Bureau (CFPB), overdrafts have also drawn negative attention. CFPB proposed rules in January would limit fees to $3 per overdraft, while President Biden has blasted the practice as exploiting struggling Americans.

In response, major banks have introduced changes to curb fees and reduce customer impacts. JPMorgan now exempts certain transactions from penalties, provides a $50 cushion before fees kick in, and instituted a one-day grace period. Bank of America cut its overdraft charge to $10 from $35 last year. Industry-wide, overdraft revenue in 2022 was 35% below 2019 levels according to a CFPB report.

The voluntary reductions have accelerated, with JPMorgan’s 2022 overdraft revenue declining 12% to $1.1 billion and Wells Fargo’s falling 27% to $937 million. But the steepest drop came from Bank of America, which reported just $140 million in 2022 overdraft fees - a plunge of 64%. While still profitable, banks say overdraft services help customers avoid worse options like payday loans when funds run short. But the era of big overdraft profits appears to be ending.