Community Banks See Competitive Impact from Overdraft Plan Despite Exemption, Survey Finds

Bankers remain skeptical of economic outlook

ARLINGTON, Va., May 1, 2024 /PRNewswire/ -- Fifty-eight percent of bankers would take action to reduce costs or increase revenue elsewhere even if exempt under a new regulatory proposal to restrict overdraft fees, according to a survey of nearly 500 financial executives released today.

In a survey by liquidity management fintech IntraFi, 44% of respondents said if the plan went into effect, they would lower overdraft fees to remain competitive with larger banks, while 35% said they would alter their policies, and 27% said they would raise fees on other banking services. These actions would occur despite the fact that banks with less than $10 billion of assets would be exempt from the Consumer Financial Protection Bureau's plan.

"Even banks that are exempt believe they will need to find additional sources of revenues or potentially limit their current overdraft protection," said Mark Jacobsen, Cofounder and CEO of IntraFi.

The CFPB issued a proposal on Jan. 17 that would limit banks' overdraft fees to $3 or a cost calculated by banks if they show their cost data. The banking industry has largely opposed the plan, arguing it would harm consumers who rely on overdraft protection.

In the IntraFi survey, bankers also said they would be impacted by other pending regulatory proposals, though not to the same extent as the overdraft plan.

Thirty-one percent of bankers indicated their institution would have to replace revenue, eliminate free checking, or take other steps should an October proposal by the Federal Reserve to lower debit interchange fees become final. The central bank's plan also would exempt institutions with less than $10 billion in assets.

Additionally, a small number of banks (17%) are also considering changes as a result of the CFPB's new $8 cap on credit card late fees.

Bankers remain on the fence regarding the economic outlook at their institutions, with approximately half stating economic conditions had remained the same over the past 12 months, and only 16% noting conditions had improved. Looking forward, 34% of respondents said they expect economic conditions to decline over the next 12 months, while 23% predicted they would moderately improve.

Other Highlights

• Funding Costs remain elevated, with 87% reporting that the price of funds has increased over the past year. But respondents were split on what comes next, with 41% predicting a further increase, while 32% foresaw costs decreasing.
• Deposit Competition has eased slightly, but 67% of bankers said it was still increasing across the previous 12 months. Roughly half predicted it would continue to increase in the year ahead while only 7% said they expect it to fall.
• Loan Demand has remained flat or declined over the past year according to 62% of bank executives, but 43% anticipate a moderate or significant increase in the 12 months ahead.

IntraFi's first quarter 2024 Bank Executive Business Outlook Survey garnered responses from CEOs, presidents, and CFOs at 496 unique banks across the country. Download the full report.

About IntraFi

A trusted partner chosen by more than 3,000 financial services companies, we define success not by the volume of transactions we enable, but by the quality of relationships we form. Our network, established over 20 years ago, connects institutions of all sizes to help participants build stronger relationships with their customers, fund more loans, seamlessly manage their liquidity needs, and earn fee income. The network brings scale, giving each participant access to tens of billions of dollars in funding, the highest per-depositor and per-bank capacity, and the peace of mind of being able to make large-dollar placements.

SOURCE IntraFi