First National Bank Texas this month introduced an overdraft alternative called One-Day Rewind, which automatically refunds a customer’s overdraft fees from the previous day if the balance on the account isn’t more than $12 in deficit by the end of the next banking day.
At first glance, a product like this might not make headlines at a $3.7 billion bank with 340 branches. But First National Bank Texas isn’t your typical lender. The bank raked in $100.3 million in overdraft fees in 2020 — almost triple its profit of $35.7 million that year. according to S&P Global. For comparison, overdraft fees account for about 8% of profits at Bank of America and 7% at JPMorgan Chase. American banker reported.
Through another measure, First National earned $137 million in service fees on consumer deposits in 2020 — accounting for 35.4% of its operating income. This makes it the country’s most reliant on these fees of any bank in the country, according to data from S&P Global.
“Over the past decade, the percentage of total revenue generated from overdraft-related fee income has decreased significantly due to continued improvements, and the bank expects another significant decrease as a result of the introduction of One-Day Rewind,” wrote First National one press release Tuesdayadding that 26% of overdue customers have used the program in the three weeks since its inception.
Brookings Institution staffer Aaron Klein has described banks like First National as “check cashers with a charter.”
“These companies are not really banks in the traditional sense in which they take deposits, make loans, and serve customers and the economy,” he wrote in a March 2021 op ed. “They’re a combination of payday lenders and check cashers whose business model depends on a single product with a sky-high APR that’s only paid by people who are running out of money.”
The concept behind One-Day Rewind is hardly unique. Wells Fargo and US Bank each announced this month that they would introduce a 24-hour grace period for customers to deposit funds and avoid an overdraft fee.
Citizens Bank introduced technology in October that alerts users to overdraft withdrawals, and PNC announced its “Low Cash Mode” offering in April 2021, aimed at a similar purpose.
JPMorgan Chase said last month it would give customers an additional business day to recover overdrawn accounts to $50 in the red or less before a fee is charged.
The $12 threshold that First National put in place before triggering an overdraft fee is lower than JPMorgan’s $50 — or the $100 that Santander allows.
Grace periods are just one method several big-name banks are using to wean themselves off overdraft fees, which have attracted increasing attention from lawmakers and regulators alike over the past year. Some banks, like Capital One and Ally, have eliminated fees altogether, while Bank of America, for example, has pledged to reduce its overdraft fee from $35 to $10.
US Bank, for one, estimates that the move away from overdraft and other fees will cost the bank between $160 million and $170 million in annual revenue. Still, “we believe this is not only the right thing for customers, but also a smart business decision,” said CFO Terry Dolan.
It’s one thing to tell when a bank’s annual revenue is $22.8 billion – as well as that of the US Bank. But when revenue is less than $400 million and service fees make up more than a third of that, it’s natural to wonder how a bank will fare if it strays from a long-held model.
“I applaud [First National] because they are taking a small step in the right direction but remain skeptical of this bank’s ability to be a profitable institution without relying on overdraft fees to survive,” Klein told American Banker on Tuesday, adding adding that he thinks “this small and inadequate change is intended to provide insurance against the further structural change that is needed.”
In a statement, a spokesman for First National called One-Day Rewind “the next step in the evolution of our consumer bank overdraft program,” adding that the bank “remains committed to innovation to meet the needs and ensure the financial health of our people.” improve customers. “
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