Increasing numbers of financial institutions are beginning to waive non-sufficient fund fees: those irritating — or even devastating — charges that happen when you bounce a check or use your debit card too freely. Some are also reconsidering certain types of overdraft charges. Rocky Hill-based Nutmeg State Financial Credit Union and Middletown’s Liberty Bank are […]
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Increasing numbers of financial institutions are beginning to waive non-sufficient fund fees: those irritating — or even devastating — charges that happen when you bounce a check or use your debit card too freely.
Some are also reconsidering certain types of overdraft charges.
Rocky Hill-based Nutmeg State Financial Credit Union and Middletown’s Liberty Bank are two Connecticut institutions that have joined what appears to be a growing national trend.
Non-sufficient fund (NSF) fees are often put in the same bucket as overdraft fees, but the two are distinct. They both involve a customer not having enough money in their account to cover a transaction, but an NSF fee is charged when a check or other payment is returned unpaid.
An overdraft fee refers to charges that can be levied even when the item is paid. It can be a courtesy fee for an arranged overdraft, or a fee for transferring funds from a linked account, like a savings or money market account.
Analyst John Carusone, director of the Hartford-based Bank Analysis Center, said the moves are being prompted largely by competition and the need to woo customers.
“It’s a big source of ill will for retail customers,” he said. “Each time you get a $37 charge for overdrawing your account by $2.50, it gives you the pain of a root canal.”
But even if it’s popular, it’s not an insignificant step for a bank or credit union to take.
John Holt, CEO and president of Nutmeg State Financial Credit Union said that by removing its $35 NSF fee, as well as transfer fees from accounts to cover an insufficient transaction, the credit union will be giving back over a half-a-million dollars to its members.
The $543.5 million-asset credit union reported $9.4 million in fee income through the first three quarters of 2022, according to financial data from the National Credit Union Administration.
“We do lose money — and a lot of it — but we believe that in good faith, doing this will hopefully lead more people to Nutmeg, more people to credit unions,” he said.
“We’re trying to put more money back in (customers’) hands, in the spirit of doing what we can to help people build their wealth, help people have more money for the things that they truly need.”
Nutmeg State will still charge overdraft fees, but Holt said the institution is in the process of restructuring its arranged overdraft offerings for customers.
Liberty Bank’s changes are similar. The bank will remove its $35 NSF fee along with smaller fees for the transfer of funds from a savings account or line of credit.
Liberty Bank, with $7.5 billion in assets, declined to reveal how much of a hit it will take from the change, but Chief Retail Banking Officer Minnie Saleh said the move was prompted by a focus on customers, and the hope is that additional business will result.
“Our commitment to our customers, community, and teammates remains our top priority,” she said via email. “It is through this commitment that we will continue to deepen existing relationships and attract new customers, which in turn will support our bank’s success.”
And the bank expects this to be popular.
“We solicit feedback from our customers and teammates on a regular basis through daily interactions and surveys and we place great significance in the feedback we receive,” Saleh said.
Federal pressure
A removal of what might be termed nuisance fees is an increasing focus of both regulators and lawmakers.
In December 2021, the federal Consumer Financial Protection Bureau (CFPB) issued two research reports on overdraft and NSF fees, with director Rohit Chopra dubbing overdraft charges “exploitative junk fees that can quickly drain a family’s bank account.”
CFPB researchers estimated that banks and other financial institutions saw revenue from overdraft and NSF fees of $15.47 billion in 2019. That amounted to almost two-thirds of reported fee revenue.
And the burden generally falls on those least able to pay.
In a previous report, the CFPB found that consumers who frequently overdraw their accounts or incur NSF fees are more likely to be credit constrained, have lower credit scores, and are less likely to have credit cards.
In June 2021, U.S. House Rep. Carolyn Maloney, (D-N.Y.), reintroduced the Overdraft Protection Act, which, if passed, would place a limit on the number of overdraft fees banks can charge per customer per year.
Meanwhile, the House Committee on Financial Services has also held hearings into the issue, to consider policy proposals to improve consumer protections around overdraft fees.
But while the pressure mounts nationally, banking analyst Carusone said the trend may well have its limitations.
“Credit unions, which are owned by their share draft account holders, and mutual savings banks like Liberty, which are owned by their depositors, don’t have the pressure of quarterly earnings, which drive the stock price,” he said.
“Those institutions that face the pressure of individual and institutional shareholder interest in their profits are going to find that it’s just too lucrative a source of revenue to part with easily,” Carusone added.
