We don't care what Michael Moore has to say about capitalism, we personally consider it a free market win that Mr. Anti-establishment himself, Bob Dylan, is shilling for a Citibank promotion. Next week, Citibank's 13mm reward account customers will be able to purchase Dylan's new Christmas album a week before the official release date. Dylan gets to sell more albums and create buzz, while Citibank gets to attract new customers and reward its existing ones for their deposit balances - it is a clear capitalistic win.
There is another capitalistic situation; however, that we are not sure is going to turn out in our collective favor - namely, overdraft protection (ODP). At present, there are at least 3 Bills being produced in Congress that seek to limit the amount charged by banks for providing ODP.
In true capitalistic fashion, several large banks quickly jumped on the anti-free-market move, by voluntarily cutting the fees on their overdraft programs. Bank of America, Wells Fargo, JPMorgan Chase, US Bank and BB&T all announced cuts starting either January 1st or July 1st of next year.
To date, these ODP scale-backs come in several forms. Most banks have agreed not to charge ODP fees on overdrafts that are less than $5 to $10 per transaction. In addition, 1 of the banks mentioned will require a stronger opt-in notification at time of account sign up, while another will require the dreaded notification at each ODP use (for debit and ATM transactions only). In addition, most seek to limit the amount of fees that can be collected by placing a 3 or 4 ODP maximum per day. Further, 2 of the banks will reorder transactions, so that the smaller transactions clear first. This leaves only the larger transactions to hit the non-sufficient funds status. This reordering will limit ODP customers from being charged fees when a series of smaller transactions bounce.
While getting out ahead of the anti-ODP fee trend, these banks will hopefully take some of the steam out of Congress. If all banks followed suit, we would expect a limited loss of fees for the industry of less than $250mm and an impact on less than 6% of retail and business customers.
Our prediction is that a hard rain is still a-gonna fall and Congress will successfully pass legislation that will place a much greater limit on overdraft fees. News stories abound touting how a destitute account holder was charged $245 by a mean bank that charged an account with no money in it. Never mind the credit risk banks have to shoulder by extending these customers an undocumented loan or the convenience of not having these customers report bounced checks or non-sufficient funds.
For budgeting purposes for the next 3Ys, we are advising banks that they should drop ODP fee revenue by 15% on average. That drop equates to about $300k for the average community bank and about $4.5B for the industry.
Lower non-interest revenues are not what the industry needs, however as Dylan sings, "the times, they are a-changin'."