First National Bank Texas launched an overdraft alternative this month it calls One-Day Rewind, which automatically refunds a customer’s overdraft fee from the day before if the account balance is no more than 12 $ in the red at the end of the next business day. .
At first glance, a product like this in a $3.7 billion, 340-branch bank might not make headlines. But First National Bank Texas is not a typical lender. The bank collected $100.3 million in overdraft fees in 2020, nearly triple its profit of $35.7 million that year, according to S&P Global. By comparison, overdraft fees account for about 8% of profits at Bank of America and 7% at JPMorgan Chase, American banker reported.
By another metric, First National collected $137 million in service fees from consumer deposits in 2020, which represents 35.4% of its operating revenue. That makes it the most fee-dependent of any bank in the country, according to data from S&P Global.
“Over the past decade, due to continuous improvements, the percentage of total revenue generated by overdraft fee revenue has declined significantly and the Bank expects a further significant decline following the implementation of One- Day Rewind,” First National wrote in a Tuesday press releaseadding that 26% of customers who discovered their accounts took advantage of the program within three weeks of its launch.
Brookings Institution fellow Aaron Klein called banks like First National “check-tellers with a charter.”
“These entities are not really banks in the traditional sense of taking deposits, making loans, and helping customers and the economy,” he wrote in a statement. March 2021 forum. “They are a combination of payday lenders and check cashers, whose business model is based on a single product with an exorbitant annual interest rate that is only paid by cash-strapped people.”
The concept behind One-Day Rewind is not unique. Wells Fargo and US Bank each said this month they would introduce a 24-hour grace period for customers to deposit funds and avoid overdraft fees.
In October, Citizens Bank introduced technology that alerts users to overdrawn withdrawals, and the PNC announced in April 2021 its “low cash mode” offering, aimed at a similar goal.
JPMorgan Chase said last month it would give customers an additional business day to restore overdrawn accounts to $50 in the red or less before a fee is charged.
The $12 threshold that First National has instituted before triggering an overdraft fee is lower than JPMorgan’s $50 — or the $100 allowed by Santander.
Grace periods are just one of the methods several big banks have used to wean themselves off overdraft fees, which have garnered increasing attention over the past year from lawmakers and regulators. Some banks, like Capital One and Ally, have dropped fees altogether, while Bank of America, for example, has pledged to cut its overdraft fee from $35 to $10.
US Bank, for its part, estimated that scrapping overdraft and other fees would cost the bank between $160 million and $170 million in annual revenue. Still, “we believe it’s not just the right thing to do for customers, but it’s a smart business decision,” Chief Financial Officer Terry Dolan said.
It is one thing to say that when a bank’s annual income is $22.8 billion – just like that of the US Bank. But when revenues are less than $400 million and service charges are more than a third of that amount, it’s natural to wonder how a bank will fare if it strays from a long-standing model. .
“I applaud [First National] for taking a small step in the right direction, but stay skeptical, this bank is capable of being a profitable institution without relying on overdraft fees to survive,” Klein told American Banker on Tuesday, adding that he thinks “This small, insufficient change is intended to provide a hedge against the more structural change that is needed.”
In a statement, a First National spokesperson called One-Day Rewind “the next step in the evolution of our consumer bank overdraft program,” adding that the bank “remains committed to innovating to meet the needs and improve the financial health of our customers.”