U.S. banks overdraft income declined for the third consecutive quarter as more institutions shift away from the practice.

The industry reported a total of $1.76 billion in overdraft-related service charge income in the third quarter, down nearly 8% from the second quarter when banks brought in $1.91 billion in overdraft-related income and 22% from the year-ago period. The third-quarter total also marked the lowest level of overdraft fee income since the second quarter of 2020 when the fee income plunged at the onset of the COVID-19 pandemic.

Many U.S. banks are changing their overdraft fee practices by either reducing those fees or eliminating them altogether as competitive and regulatory pressures culminate. In a recent regulatory development, the Consumer Financial Protection Bureau, which has cracked down on bank supervision, issued guidance for banks regarding overdraft "junk fees" on Oct. 26.

The agency also ordered Regions Bank, the banking subsidiary of Regions Financial Corp., on Sept. 28 to pay $191 million for allegedly charging "illegal" surprise overdraft fees to customers. Regions ranked eighth among U.S. banks with the most consumer deposit fee income in the third quarter and 19th among U.S. banks with the highest proportion of consumer deposit fees relative to operating revenue, according to an analysis by S&P Global Market Intelligence.

Consumer deposit fee income

The proportion of service charges and fees on consumer deposits as a proportion to operating revenue declined to 1.4% in the quarter, also the third consecutive quarter-over-quarter drop.

Overdraft-related charges, maintenance service charges and ATM fees totaled roughly $3.28 billion in the quarter, down from $3.36 billion, or 1.5% of the industry's operating revenue, in the second quarter.

Highest proportion of deposit fee income

The industry median for service charges and fees on consumer deposits as a proportion of operating revenue held steady at 1.5% in the third quarter, but some banks depend more on fee income than others.

Service charges on consumer deposit accounts made up more than 10% of five U.S. banks' operating revenue in the third quarter, in line with the prior two quarters.

*Click here to access S&P Global Market Intelligence's top 20 banks ranked by service fees as a proportion of operating revenue. *Read some of today's top news and insights from S&P Global Market Intelligence.

Woodforest National Bank remained atop the list with 27.9% of its third-quarter operating revenue coming from $214.6 million in service charges associated with consumer deposits. That proportion stands more than 11 percentage points above the next highest company, Gate City Bank, which reported that service charges on consumer deposit accounts made up 16.6% of its operating revenue during the quarter.

Most deposit fee income

Wells Fargo & Co. remained atop the list of U.S. banks with the most consumer deposit fee income. The company reported $2.30 billion in service charges associated with consumer deposits, up 13.6% year over year.

JPMorgan Chase & Co. also reported a year-over-year increase as its $2.27 billion in service charges associated with consumer deposits was 2.1% higher than the third quarter of 2021.

Conversely, Bank of America Corp. reported a 17.0% decline in service charges associated with consumer deposits year over year.