Wells Fargo’s overdraft income surges ahead of rivals

Growth likely to attract interest from consumer banking regulator


Wells Fargo increased income from overdraft charges at more than five times the rate of its US bank peers in the third quarter — a finding that is likely to concern the consumer banking regulator as it prepares a crackdown on the $12bn-a-year corner of the financial services industry.

Most of the big US banks have seen steady growth in revenues from overdrafts in recent years, as they push up one-time fees and as cash-strapped consumers allow balances to dip more often into negative territory. Across the industry, charges for overdrafts amounted to $3.02bn between July and September, up 2.4 per cent since the same period last year, according to data prepared for the Financial Times by FIG Partners of Atlanta.

But overdraft income at Wells — which was rapped last year by the Consumer Financial Protection Bureau for allowing its employees to open up to 2m unauthorised accounts — was up 7.5 per cent in the third quarter from a year earlier. That was more than five times the average 1.3 per cent increase at JPMorgan Chase, Bank of America, TD Bankand US Bank, which round out the big five fee-earners in absolute terms.

The steady growth across the industry is likely to worry the CFPB, which is due to produce new rules on overdrafts in the second half of 2017. Public policy groups say the move is long overdue, as a lack of clear standards has allowed banks to offset pressure on fees in other areas of their businesses.

Kris Dahl, a spokesperson for San Francisco-based Wells, said the bank has made a number of recent changes to its overdraft policies, such as making it easier for customers to view account balances.

He said that the bank’s $35-a-time fee — unchanged for five years — has a range of functions: “to cover the costs associated with this service, to discourage reliance on overdrafts and to mitigate the financial risk the bank assumes when extending additional funds.”

Christopher Marinac, managing principal and director of research at FIG Partners, said that Wells’ outsized growth in overdrafts is likely a reflection of a tougher policy on requests for refunds.

Wells said that overdraft charges increased because more customers were using their accounts for debit card purchases and online bill payments. It also noted that 2015 charges were lowered by a feature launched in late 2014, when it began notifying customers of items due to be processed that night.

Wells has been in the spotlight for overdraft practices before. Last April, the Supreme Court let stand a $203m verdict in favour of Californians who were repeatedly charged overdraft fees by the bank. In 2010, a federal judge had ruled that Wells had sought to maximise overdraft charges by subtracting the highest charges first on a debit card, which had the effect of multiplying the number of overdrafts.

According to Nick Bourke, a research director at The Pew Charitable Trusts, a Philadelphia-based non-profit, action on overdrafts from the CFPB cannot come soon enough. He noted that habitual overdraft users are losing nearly a full week of household incomes each year through fees.

“There is a better way to do this,” he said.

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