US banks' overdraft fee income ticked up sequentially in the fourth quarter of 2023 as the Consumer Financial Protection Bureau continued its effort to put a limit on those fees.
The industry reported $1.41 billion in overdraft fee income in the quarter, up more than 3% from the linked quarter. The uptick marked only the second time that banks reported a rise in overdraft fees quarter over quarter since the end of 2021.
Still, US banks have worked to decrease their reliance on fee income as competitive and regulatory pressure grows, with overdraft fees for 2023 totaling $5.58 billion compared to $7.33 billion in 2022. Despite the decline, the CFPB is continuing its fight against overdraft fees and recently upped the ante with a proposal to cap those fees as low as $3, compared to the typical fee of $35.
The largest US banks would feel the greatest impact of the rule if it is finalized, as it applies to institutions with more than $10 billion in assets as proposed.
According to S&P Global Market Intelligence data, the largest US banks bring in the most consumer deposit fee income. Among the 20 banks with the most consumer deposit fee income in the 12 months ended Dec. 31, 2023, all but two had assets over $10 billion.
However, the majority of the banks on the list reported year-over-year declines in that fee income, as many large banks have announced changes to their overdraft fee policies since late 2021.
Community banks
While larger banks bring in more overdraft fee income, community banks are more reliant on those fees. Among the 20 US banks with the highest proportion of consumer deposit fees to operating revenue, all but one were banks with less than $10 billion in assets.
Service charges on consumer deposit accounts made up more than 10% of six US banks' operating revenue for the 12 months ended Dec. 31, 2023.
First National Bank Texas topped the list with 27.4% of its operating revenue composed of consumer deposit fees.
The CFPB's overdraft fee cap proposal would make crossing the critical $10 billion threshold even more financially punitive than it already is, especially for banks teetering just below the threshold that rely heavily on that fee income, such as Woodforest National Bank.
The Woodlands, Texas-based bank ranked second among banks with the highest proportion of consumer deposit fees, with 22.3% of its operating revenue coming from that fee income for the 12 months ended Dec. 31, 2023. Overdraft-related services charges specifically made up 15% of the bank's operating revenue in the 2023 fourth quarter. Woodforest also landed ninth on the list of banks with the most consumer deposit fees.
Woodforest was just below $10 billion in assets, at $9.08 billion, at year-end 2023.
The other 19 banks sitting just below $10 billion in assets are less reliant on overdraft fee income, with a median proportion of operating revenue of 0.7%.
Q4 2023 trends
Total service charges and fees on consumer deposits for the industry rose to $2.90 billion, from $2.85 billion in the prior quarter. ATM fees declined 4.8% quarter over quarter, but overdraft fees increased 3.2% and maintenance service charges were up 2.9%.
Service charges and fees on consumer deposits as a proportion of operating revenue ticked up to 1.20%, from 1.14% in the linked quarter.
