Study: Big Banks Still Earning Billions from Fees During Pandemic

Posted by Frank Gogol
Updated on April 25, 2022

KEY FINDINGS

  • Banks charged $4.15+ Billion in NSF Fee during Q2 2020
  • Banks charged $5.09+ Billion in Overdraft Fee during Q2 2020
  • The average NSF Fee was $29.67 and the average overdraft fee was $28.32
  • Bank customers in the U.S. paid ~$11.6 billion in fees during the first three months of COVID-19

On March 11, 2020, the World Health Organization announced that COVID-19 had been elevated to a pandemic-level virus. At the time of this writing, nearly six months later, the total number of COVID-19 cases worldwide stands are 25,254,339. In the U.S. alone, there are more than 6 million cases (or about 24% of all cases), and that number only showing signs of continuing to increase. 

With more than 183,000 (and counting) dead and more than 10% of the U.S. workforce currently unemployed, it’s clear that that COVID-19 has taken a toll on everyday U.S. citizens.

Who Do Bank Fees Effect?

The economic hardships the COVID-19 recession has created are many, but they have hit the non-white and low-income communities hardest

But this is nothing new. A Bankrate study from earlier this year found that non-white bank customers pay three times as much as their white peers pay in bank fees every month.

Another Bankrate study from 2017 found that “Americans with annual household income under $30,000 and a checking account pay an average of $31 per month in bank or credit union fees” — or more than three times as much as the $9 typically paid by other income brackets. The study further concluded that while just one-third of bank customers end up paying fees, that one-third is disproportionately from households with lower income and education levels.

Back in March, the Board of Governors of the Federal Reserve System (Federal Reserve) issued a statement urging financial institutions to work with affected customers and communities, particularly those that are low- and moderate-income, by waiving ATM, overdraft, and other fees. 

Now that COVID-19 has been impacting U.S. bank customers for six months, we wanted to take a look at the role fees are playing in the new economic landscape. We found that, in spite of recommendations from the Federal Reserve, banks have continued to earn millions of dollars in fees during the pandemic.

Average Fees at the Top 10 Banks

Before we dug into fees during COVID-19, we wanted to get a baseline understanding of fees charged by the major banks. So, we took a look at the average fees by type and the average number of times per year customers paid those fees at major banks.

Here’s what it looks like for the 4 major types of fee:

Overdraft Fees

Overdraft fees are one of the most costly fees charged by any bank. Customers are charged an overdraft fee when a debit is made for an amount greater than the available balance. The big difference between an overdraft fee and insufficient funds fee is that and overdraft will leave a customer with a negative balance rather than the transaction not going through.

Banks also process transactions with the highest amount first and charge a fee for each transaction. So, if a borrower has a low balance, they will be charged the same fee multiple times.

Among the 10 major banks we looked at, nine out of ten banks have average overdraft fees between $24 and $36. SunTrust charges the most on average for an overdraft at $36. Regions Bank is an extreme outlier when it comes to overdraft fees, charging just $5.17 on average.

Insufficient Funds Fees

Like overdraft fees, insufficient fees are among the most dreaded and expensive bank fees. Depending on the bank, a single insufficient funds fee can cost a bank customer more than $35 for not having balance enough to cover an incoming transaction.

At seven of the ten banks, insufficient funds fee will cost anywhere from $30 to $36 per transaction. First Third Bank charges $35.67 on average on the high end while Regions Bank, again, charges the least at just $12.26 on average.

Maintenance Fees

“Maintenance” fees are sort of catch-all category for various fees having to do with a bank account. A bank customer can be charged a maintenance fee for anything from not having a direct deposit set up to their balance dropping below a minimum threshold.

Generally speaking, maintenance fees are paid monthly and cost between $5 and $14. On the higher end, Fifth Third Bank and US Bank customers pay an average of $13.71 and $13.34 each month in maintaining fees, respectively. PNC customers pay the least each month, with an average fee of $5.54 — nearly a dollar less than the next cheapest rate.

ATM Fees

One of the most common fees faced by most bank customers is the ATM withdrawal fee. Generally, withdrawing from an in-network ATM won’t cost the customer a fee, but out-of-network ATM charges can cost the customer several dollars per withdrawal and those charges can rack up.

SunTrust charges the lowest rate for an ATM withdrawal at $1.70 on average. US Bank charges the most at $3.16 on average. The rest of the banks charge $2.28 on average.

How Many Times Per Year are Customers Paying these Fees?

Overdraft Fees

The average number of overdraft fees ranges from 2.5 (Regions Bank) to as many as 11.89 (Fifth Third Bank). The average number of overdraft fees across all major banks annual is 7.2* per customer per year.

Insufficient Funds Fees

Customers pay between 2.11 (TD Bank) and 10.22 (Chase) insufficient funds fees annually. The industry average number of insufficient funds fees per customer was 5.6 per year.

Maintenance Fees

The average number of maintenance fees paid by customers each year ranged from 4.18 (SunTrust) to 26.94 (US Bank). The average number of maintenance fees paid was 9.2 per year.

ATM Fees

The average customer makes approximately 10 withdrawals at out-of-network ATMs per year that result in a fee. SunTrust customers make the fewest out-of-network withdrawals on average each year (5.22) while Citi Bank customers make the most (16.8)

* For this calculation, we excluded TD Bank, which was significantly greater than all other averages and was likely a reflection of our sample size rather than the actual figure for the bank.

Bank Fees During the Three Months of COVID-19 (Q2 2020)

With a better understanding of how much bank customers are paying in bank fees and how often they are paying those particular fees, we had a solid baseline to start understanding what those figures looked like during the first three months of the pandemic (Q2).

During the first two months of 2020, the number of fees paid by the average customer was either about the same (ATM, maintenance) or was up 39% to 55%. But as the pandemic set in during Q2, the numbers start to drop off.

In the second quarter of 2020 (the first three full months following COVID-19 being declared a pandemic) the number of overdraft fees per customer dropped to 77% of its 2019 average for the same three months. In spite of that drop, banks collected approximately $5,097,600,000 per 100 million customers during that period.

Insufficient funds fees tell a similar story. During Q2 2020, insufficient funds fees per customer dropped by 9% year over year (compared to Q2 2019.) This means banks netted approximately $4,153,800,000 per 100M customers.

Maintenance and ATM fees per user dropped by 7% and 59% respectively, during Q2 2020. Per 100 million bank customers, maintenance fees brought in $2,105,521,860 and ATM fees brought in $269,005,818.

That brings to total fees paid across all four categories of fees to $10,612,207,262 in Q2 2020 — at a time when more than 10% of the U.S. workforce is unemployed and the Federal Reserve has urged banks to work with their customers.

Methodology

The findings in this analysis are based on data collected from 7,500 Stilt loan applicants who applied for a loan with Stilt between Jan 1, 2019 and June 30, 2020.

To determine the annual total fee charged, we calculated the average fee across all banks. We multiplied this by the average number of times a fee was charged in the last 12 months.

We estimate that there are 100M account holders in the US. To calculate the total fee, we multiplied the average fee charged per account by 100M. Q2 2020 fee is calculated as 1/4th of the expected total fee charged by the banks per year multiplied by the average number of fees in Q2 as a percent.

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