The largest bank has just announced the end of overdraft fees | Personal finance
Another bank is eliminating overdraft fees – and this time it’s one of the largest banks in the United States
By summer, Citigroup, the owner of Citibank aka Citi, will follow the moves of other banks by completely getting rid of overdraft fees, as well as overdraft protection and insufficient funds (NSF) fees. The new policy would make Citi the largest U.S. bank to date to waive the fee, which is charged when a customer does not have a large enough account balance to cover a transaction.
Citi’s decision comes under pressure from competing banks and a federal oversight agency.
The Consumer Financial Protection Bureau (CFPB) recently announced that it is cracking down on banks that are “heavily dependent” on these fees. The agency launched an initiative last month that encourages consumers to file complaints against the worst “junk fees” they have encouraged at financial institutions, including banks, credit unions and credit card companies. .
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“Unwanted charges” is a general term that includes excessive, unexpected, or confusing charges. The NSF and overdraft fees certainly fit the bill.
A recent CFPB report shows that banks are raking in billions of dollars from these types of fees. In the first nine months of 2021 alone, Wells Fargo earned $1 billion, JP Morgan Chase earned $924 million, and Bank of America made $823 million in revenue from NSF and/or overdraft fees . Several other major banks have also earned hundreds of millions on the fees.
During this same period, Citi earned $70 million.
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Bank charges: Overdrafts, NSF charges, overdraft protection
Recently, several other major banks have announced changes to their NSF and overdraft fees. But not all of them completely eliminate fees, and it can be confusing to distinguish what fees remain and when they are charged.
For example, this month Bank of America is starting to reduce some of its NSF and overdraft fees. The bank said it would first eliminate its NSF fee in February and its overdraft protection fee in May. That same month, the bank will also reduce its overdraft fee from $35 to $10.
Each fee is slightly different:
- An NSF tax is basically an NSF check fee. It is debited when you overdraw your current account, your bank does not honor the transaction and you incur charges if you don’t have enough in your account.
- Overdraft fee is the one in which you overdraw your account and your bank allows the transaction to proceed anyway – charging you a fee for the service in the process. NSF and overdraft fees are usually around $30 to $35.
- An overdraft protection commission is basically a money transfer fee that costs less than an NSF or typical overdraft fee. In this case, you are overdrawn on one of your bank accounts, but you have an overdraft protection service that automatically transfers funds from a separate account. The fee covers the transfer of funds.
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Citi says it will eliminate those three fees by this summer. Similarly, Capital One is getting rid of the three fees for consumer banking customers “in early 2022.”
It is often not straightforward to determine exactly how these new policies will play out in real life. For Capital One’s program, customers will have the option of signing up for a free overdraft account if they aren’t already. Customers who do not take action will simply have a transaction declined if it exceeds their available balance, and no NSF fees will apply.
In June 2021, Ally was among the biggest trendsetters, announcing that she would be scrapping overdraft fees for all accounts, effective immediately.
Some institutions, such as Axos Bank, Discover, and Betterment, have partially waived overdraft fees, but only for certain types of checking accounts. Synovus, PNC and Citizens have all recently reduced, but not eliminated, overdraft fees.
The National Consumer Law Center, Center for Responsible Lending and other consumer groups have long spoken out against overdraft fees, saying the fees cause families “severe financial hardship at the best of times” and that the pandemic has only produced this effect.
Now that one of the largest banks in the United States is following the trend, overdraft fees may soon be a thing of the past.
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