An Analysis of the California Department of Financial Protection and Innovation’s First Report of Income from Fees on Nonsufficient Funds and Overdraft Charges
Fees like overdraft (OD) and nonsufficient fund (NSF) charges are undue burdens that disproportionately fall on those who have less cash on hand in the first place. Expensive and excessive charges can make difficult economic conditions worse, and can lead to account closures or a negative credit report which makes opening a new account even more difficult. The Financial Health Network’s policy brief on overdraft trends finds Black and Latine households on average report having overdrafted more often than white households, and households with incomes under $30,000 were twice as likely to report at least one overdraft than those with household incomes of $100,000 or more. Financial Health Network’s research also finds that nearly half of households considered financially vulnerable have overdrafted, and among individuals who reported overdrafting more than 10 times, 82% were financially vulnerable.
People should not be penalized for living paycheck to paycheck, and it is imperative that advocates and consumers understand which institutions prey on this economic precarity. The Consumer Financial Protection Bureau (CFPB) routinely publishes research about overdraft policies and fees charged by banks with assets over $1 billion, but information is largely missing related to smaller banks and credit unions’ practices with junk fees. SB 1415 (Limon 2022) mandates that state-chartered banks and credit unions report their revenues from fees like overdraft and NSF charges, so that consumers, advocates, and legislators can gain a better understanding of this one aspect of institutions’ revenue from what is colloquially known as “junk fees”. 2023 marks the first report of this data published by California’s Department of Financial Protection and Innovation (DFPI).
The report’s findings illustrate that state-chartered credit unions were the worst actors when evaluating NSF and OD by both total revenue in dollars, and as a proportion of total income. When ranking institutions according to dollar amount in revenue from NSF and OD fees, credit unions make up 15 of the top 20 highest fee-charging institutions. The top 20 institutions for dollar amount revenue in junk fees collected a total of $211,330,000. This represents 65% of total OD and NSF fees collected by state-chartered institutions ($322,534,000).
The following table ranks both state chartered banks and credit according to revenue from NSF and OD fees expressed as a proportion of total income, which DFPI states is a good measure for how much an institution relies on junk fees for operations. Credit unions make up the top 20 institutions according to percentage of total income from NSF and OD fee revenue.
Furthermore, when compared to banks, credit unions reported higher percentages of income made up by NSF and OD fee revenue. The largest percentage of revenue made up by these fees for credit unions was upwards of 15%, whereas the greatest percentage of total income made up of junk fees among banks was 6%.
Collecting so much OD/NSF fee revenue and depending so heavily on this revenue for income is incongruous with the claims of being community-minded and serving the needs of members adequately — as the credit union industry often claims.
The findings of DFPI’s report point to two clear policy needs – greater regulatory oversight, and a public banking option. While state chartered banks are covered by the federal-level Community Reinvestment Act (CRA), credit unions are not covered at all. Even within the existing CRA, junk fees like OD and NSF are rarely considered in a bank’s performance evaluation. The state of California should enact its own state-level CRA, housed under the DFPI, to cover state-chartered banks and state-chartered credit unions, as well as other institution types. A state-level CRA could go above and beyond the federal legislation to provide greater oversight and accountability against things like unfair and excessive consumer fees that hinder the economic stability of LMI and BIPOC borrowers and communities. A strong state-level CRA would evaluate financial institutions on their excessive charges, and give downgrades or penalties depending on the severity of the charges, while also creating a regulatory obligation for institutions to reinvest in the communities it serves.
Second, a universal public banking option for the state, such as that being established under AB1177, or California Public Banking Option Act, would allow wide access to a no-fee, no overdraft, zero-penalty debit account for consumers. It has been estimated that CalAccount, a program established by the legislature to provide a no-junk fee bank account option to all Californians, could save consumers a cumulative $3.3 billion in overdraft and nonsufficient fund charges. This sum saved in fees could generate an estimated $4.2 billion reinvested in the state economy.
You can explore the DFPI data further in an interactive dashboard where you can search for the institutions charging the most in fees, by institution name, institution type or income metric. Click on the orange, purple, or blue button to see the data for each institution type. Click on the column headers to sort the ranking according to the respective measure, or search by institution name.