Overdraft Fee income and its sensitivity to regulators

Answered by:

Question:

A large amount of our bank’s Net Income Before Taxes and Extraordinary Items, shown on our Call Report or in general ledgers, consists of fees associated with the automated ODP product. Is this of any concern to our regulatory agencies and do we need to be monitoring the impact of overdraft fees to our bottom line?

Answer:

Yes. Regulators are concerned when such fees constitute a material amount of a bank’s fee income as this may be an indication that a bank is aggressively charging higher fees relative to their peers or have shorter grace periods for repayment before a continuous overdraft fee is accessed. Additionally, such fees may be an indication that the bank is aggressive in “opting-in” customers for the assessment of a fee related to ATM and one-time debit transactions.
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