Why are Banks Cutting Overdraft Fees?
Huntington announces sharp reduction in fees as industry focus shifts
Columbus, Ohio-based Huntington Bancshares announced this week it will cut the cost of an overdraft fee by about 60% starting in April. The bank also plans to reduce the fee it charges when a customer’s transaction is rejected due to insufficient funds. Both fees will go from a current amount of $36 to a reduced amount of $15.
The move at Huntington comes as major national banks and some regional banks are moving away from overdraft fees altogether.
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The move is being further accelerated by the Consumer Financial Protection Bureau’s (CFPB) notice of intent to regulate the fee practices of the banking industry.
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“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”
For its part, Huntington expects that the changes will be well-received by customers and help the bank attract and retain customers. As American Banker reports:
The reduction in overdraft fees will cost the Columbus, Ohio-based bank about $14 million per quarter, but it will more than pay for itself over time, Chairman and CEO Steve Steinour said Tuesday. Huntington reported $372 million in service charges on deposit accounts last year.
“Over a few years, we’ll make that back — new customers, lower attrition, more business,” Steinour said in an interview. “There is some near-term pain or challenge with some of the decisions we’ve made, but we believe they’re in the long-term best interests of our customers and…