Citi Axes Overdraft Fees, Other Banks May Follow
Citigroup is the latest – and the largest – bank to eliminate overdraft fees. Citi said yesterday it would eliminate the $34 overdraft charge this summer.
Citi joins Ally Financial of Detroit and Capital One of McLean, Virginia, which scrapped overdraft fees earlier, as political pressure from progressive Democrats like Sen. Elizabeth Warrn (D-Mass.) has grown steadily.
“Bank overdraft fees snatch billions from struggling families & even during this pandemic, big banks raked in billions from this abusive practice,” Warren wrote in a tweet in December. She had earlier criticized JPMorgan Chief Executive Officer Jamie Dimon as “star of the overdraft show.”
Rohit Chopra, the director of the Consumer Financial Protection Bureau, has said many lenders have become “hooked on overdraft fees” to feed their profits but Citi’s revenue from the fees is relatively slight, making up less than 1% of total fee income, according to a recent regulatory filing, reported by American Banker. That compares with 2.3% at JPMorgan Chase and roughly 5% at both Wells Fargo and Bank of America.
The CFPB said in December that the U.S. banking industry’s revenue from overdraft and insufficient funds was $15.47 billion in 2019.
Lowest charged by major banks
In its announcement, Citi said its existing overdraft fee is among the lowest of major banks and said it is always trying to “expand access to inclusive banking products.”
“We are continuously looking for ways to utilize our industry-leading capabilities to make the financial system easier and more equitable for communities who have little or no financial buffer,” said Gonzalo Luchetti, CEO of US Personal Banking at Citi.
Luchetti noted that Citi currently blocks ATM withdrawals that would result in overdrafts and also issues low balance alerts to warn customers that they may need to make a deposit soon.
Other banks falling into line
Other banks are beginning to eliminate or reduce overdraft charges. Bank of America, First Citizens Bancshares of Raleigh, N.C., and M&T Bank have all reduced – though not eliminated – their fees recently.
JPMorgan Chase has raised the cushion below which customers can avoid an overdraft fee from $5 to $50. It has also said that it will give customers a day to make up for any overdrafts beyond $50 and announced plans to allow customers to access direct deposit funds up to two days early, American Banker said.