Truist Financial will soon introduce two new overdraft fee-free checking accounts, joining a long list of banks that are reducing their reliance on the increasingly disfavored income source.
The launch of Truist One Banking — which is expected to take place this summer — is a major part of the Charlotte, North Carolina, company’s plan to overhaul its checking account program and expand access to mainstream financial services. The plan also includes the elimination of fees for non-sufficient funds, negative account balances and overdraft protection transfers. Older accounts that charge overdraft fees will gradually become a smaller part of the company's deposit base.
The changes will result in a roughly $300 million annual decrease in overdraft-related income — almost 60% of the company’s total — by 2024, bank executives told analysts Tuesday during the company’s fourth-quarter earnings call. The revenue decline will begin in the second quarter of this year and speed up in 2023 as customers open Truist One accounts, they said.
Truist is “reinventing” the checking account experience to better align with customers’ needs for “more flexibility, lower costs and more financial confidence,” CEO Bill Rogers said.
“Long-term, this is a win-win for all of our stakeholders as we will increase client acquisition, enhance deposit growth and simply improve the overall client experience,” he said.
Large and midsize banks are facing pressure from Biden-era regulators and Democratic lawmakers to rein in overdraft fees, which critics argue are harmful to American consumers, especially those at the lower-end of the income spectrum. Last month, acting Comptroller of the Currency Michael Hsu suggested changes that banks could make to improve their overdraft programs, such as providing grace periods before charging fees.
Consumer Financial Protection Bureau Director Rohit Chopra has been more aggressive, saying that his agency would crack down on banks that rely too much on overdraft fees.
Banks’ actions, which ramped up in 2021, have varied. JPMorgan Chase gave customers an extra business day to avoid overdraft fees, while Huntington Bancshares’ launched a digital line of credit for emergency expenses up to $1,000. Bank of America announced last week that it will slash its overdraft fee from $35 to $10.
Ally Financial in Detroit and Capital One Financial in McLean, Virginia, have taken perhaps the most drastic approach by eliminating overdraft fees permanently for all of their customers.
Truist’s strategy has multiple parts. Though it will not charge overdraft fees, the new Truist One account will offer two backup options for customers who overdraw their accounts — a buffer for overdrafts of up to $100 and, for those who exceed their available balance by more than $100, a line of credit that provides funding of up to $750, the bank said.
There will be no impact to customers’ credit scores if they decide to tap into the line of credit, but if a client defaults or makes late payments, credit scores could be affected, the bank said. The amount of credit available to each customer will depend on that person’s transaction activity, and repayments will be due in the form of installment loans over a set period of time, the bank added.
Separately, Truist will launch a checking account geared toward unbanked and underbanked customers. Like the Truist One account, the as-yet-unnamed product will not charge overdraft fees, and eligible customers will be able to access the $750 line of credit, the company said.
In 2020, the last full year for which data is available, Truist reported $422 million in overdraft-related revenue, according to call reports. The company expects that it will make up some of the $300 million in annual lost revenue by adding new customers, Brant Standridge, chief retail community banking officer, told American Banker.
“We believe over the long term that this will build a reservoir of trust with clients and ultimately will lead to more clients,” Standridge said. “We’re not thinking about it as, ‘Now we have to find another way to charge clients.’ We think it gives us the opportunity to have more clients.”
When the new accounts roll out, Truist will stop selling all of its existing checking accounts. But the $541 billion-asset company will not force customers to migrate to the new accounts, which may include a monthly fee.
The checking account and overdraft changes come as Truist nears the end of a two-year integration process that followed the merger of two banks — BB&T in Winston-Salem, North Carolina, and SunTrust Banks in Atlanta — to form what is currently the sixth-largest commercial bank in the country. In February, Truist expects to complete the final core systems conversion by migrating SunTrust’s legacy retail and commercial clients over to the Truist platform.
Legacy BB&T customers were switched over to the new platform in October.
Truist said that it is on track to meet its goal of closing more than 800 retail branches by the end of the quarter. It is also 90% of the way through its plan to reduce the number of non-branch facilities.
Truist executives said Tuesday that the company still expects to achieve its merger-related net cost-savings goal of $1.6 billion by the end of the year. By next year, Truist does not anticipate recording any merger-related charges.
For the quarter, Truist reported net income of $1.5 billion, an increase of 24% year over year, in part because of solid fee income. Merger-related charges of $212 million were a countervailing factor.
The company expects both revenue and expenses to rise in 2022. Revenue will tick up by between 2%-4% this year due partly to growth in fee income, Truist estimated.
The revenue guidance includes the impact from launching the Truist One account and the related fee reductions, the bank said. Meanwhile, noninterest expenses are expected to increase by 1% to 2% due to inflation, investments and costs from acquisitions in 2021.
Correction
An earlier version of this article failed to note that customers' credit scores could be affected if they use the line of credit and subsequently make late payments or default. It also stated incorrectly that the checking account geared toward unbanked and underbanked customers will not offer access to the $750 line of credit. Truist provided erroneous information.
January 20, 2022 5:38 PM EST
