Overdrafts: Service Fee or “Junk” Fee?


John Cohron |

In President Joe Biden’s State of the Union address on February 7, he called on Congress to crack down on “junk fees.” He defined the term in his address as “those hidden surcharges too many companies use to make you pay more.” Among those attributed to this murky category were charges related to overdraft services.

The Independent Community Bankers of America (ICBA) wasted no time in rejecting his remarks as “misleading” and a “mischaracterization,” stating in part:

“Community banks provide a wide range of products and services that customers may select to address situations in which they’ve overdrawn their account, including overdraft programs, free ad hoc solutions, alerts about their account status, account transfers, and more.

[…] Given these realities, current community bank practices are appropriate and do not constitute surprise ‘junk fees,’ despite the misrepresentation of the community bank business model by President Biden and the Consumer Financial Protection Bureau.”


This misrepresentation paints overdraft fees with broad strokes, characterizing all overdraft program fees as detrimental to consumers and a scheme to make money. Unfortunately, what they are ignoring  are the service-based, fully disclosed, compliant overdraft models that responsible community banks and credit unions have been offering consumers as just one of many optional financial services.

The whole story is, of course, much more nuanced. Yes, some FIs have wayward overdraft programs with unreasonable fees or those that lack the necessary transparency — those FIs should most definitely address these issues. But responsible, consumer-centric overdraft protection provides a true service that some consumers find beneficial and choose to use in certain situations. The associated service fee has distinct differences from a “junk fee.”


“Junk fee” is a good buzzword for getting attention, but it doesn’t accurately describe many of the overdraft programs in the market today. Additionally, many community financial institutions go to great lengths to offer pro-consumer services like overdraft protection that their account holders find value in.

And, yes, 89% of consumers find their financial institution’s overdraft protection valuable. Why? Because the alternatives for a consumer who does not have a major bill paid due to non-sufficient funds can result in an expensive late fee, dinged credit score, or cancellation of services and other consequences worse than a one-time fee to ensure their payment is made on time.

If access to such a service is appreciated by 9 out of 10 people, it seems inaccurate to label it as a “junk fee.”

As an expert in overdraft consulting for decades, JMFA has provided guidance throughout the years to meet the demands of both regulators and consumers. By helping community banks and credit unions across the U.S. offer fully disclosed, transparent, and compliant solutions, we ensure that account holders find value — not “junk” — in their financial institution’s overdraft services.

To re-evaluate your overdraft program and verify that it provides a valuable service to account holders, contact us.

JMFA provides community banks and credit unions with comprehensive overdraft consulting with consumer-focused recommendations, data-driven intelligence, and a 100% compliance guarantee to address your evolving needs. To learn more, contact your local representative or call us at 800-809-2307.


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