Congressional Backlash

As the CFPB dug into the issue, banks deluged the agency with arguments that consumers actually like being able to overdraw their accounts. And while JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo Co. generate the most fees, the fiercest lobbying has come from small banks that say the revenue is crucial to their survival. Community banks have clout with U.S. lawmakers, many of whom have dozens of small lenders based in their congressional districts.

“There would be a fierce backlash if the CFPB gets too prescriptive here, and that would play badly in Congress,” said Camden Fine, chief executive officer of the Independent Community Bankers of America, a Washington-based industry group.

Fine said he has warned the CFPB that overdraft fees help support branch networks, which could be at risk from stringent regulation.

Vahey, the CFPB spokeswoman, said that the agency wants to “fully understand the overdraft practices at banks and credit unions of different sizes, a goal that has been encouraged by small institutions.”

Fee Windfall

The U.S. banking industry is on pace to collect more than $10 billion of the fees this year, with JPMorgan, Bank of America and Wells Fargo each generating more than $350 million of revenue from the charges in the first quarter, according to SNL Financial. Regulators require banks with more than $1 billion of assets to disclose their overdraft revenue.

Perhaps undercutting the need for tough CFPB rules is that analysts at Jefferies say the revenue is declining.

The Federal Reserve required in 2010 that customers agree to overdraft protection before banks can apply it to their accounts. Unless consumers opt in, any transactions that would lead to a negative balance are declined.

That regulation, and the fact that customers can now easily check bank balances through smartphone apps, has eroded earnings, Jefferies’ analyst Ken Usdin and his colleagues wrote in a report last month. They also concluded that the revenue is less critical for banks than it was almost a decade ago.