Banks Took Over $460 Billion In Overdraft Fees Since 2010
Making money off people who don't have enough money is a lucrative enterprise, but its days may be numbered.
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Fining people for not having enough money is big business for banks. Since 2010, banks raked in over $460 billion, adjusted for inflation, in overdraft fees, according to financial research company Moebs Services and Fortune.
In 2020 alone, as millions lost their jobs and millions more had strained budgets due to the Coronavirus pandemic, banks took in around $30 billion in overdraft fees. In the final three months of 2020 as the pandemic raged, JPMorgan Chase, Wells Fargo and Bank of America brought in over $300 million in overdraft fees, according to Alexander Sammon at the American Prospect.
Corporate front group, the U.S. Chamber of Commerce, vehemently opposes legislation proposing a fix to this practice, claiming it would “limit innovation and consumer choice” trying to frame it as a service banks offer as an alternative to nefarious payday loans. A study by Moebs Services found that payday loans, while predatory, offer a lower median price—$17.65 compared to the median overdraft fee of $30.
Both prey on people with insufficient means. Neither should be celebrated or protected from regulation and oversight. With overdraft fees specifically, the idea of charging people money for not already having money is deeply evil. To suggest they’re a short-term liquidity “service” provided by banks out of the kindness of their hearts is patently ludicrous. They’re revenue generators for banks, and that profiteering comes on the backs of the most desperate customers. A 2021 Consumer Finance Protection Bureau report found that “under 9% of consumer accounts paying 10 or more overdrafts per year, accounting for close to 80% of all overdraft revenue.”
Over 92% of banks and 61% of credit unions have overdraft programs. Overdraft fees account for nearly two-thirds of fee revenue in the banking industry, according to the CFPB. That’s why finance industry groups have dumped millions into the campaign coffers of members of Congress on committees where overdraft regulations are deliberated. Here are just a few:
Sen. Mike Rounds (R-SD) received $169,000 from industry groups opposed to regulation of overdrafts. He claims overdrafts “seem to [be] working fairly well.”
Senate Banking Committee Ranking Member Pat Toomey (R-PA) took over $288,000 from industry groups and banks and has repeatedly defended overdraft fees on Twitter.
Rep. Patrick McHenry (R-NC), who is the ranking member on the House Financial Services Committee, received over $685,000 from industry groups and banks. He led a group of lawmakers in sending a letter to the CFPB defending overdraft fees.
Industry groups opposed to overdraft regulation have given Rep. Ann Wagner (R-MO), the House Financial Services Vice Ranking Member, over $300,000. She claimed during a hearing regulation of overdrafts will “stifle innovation.”
Collectively, banks and industry groups have donated over $3 million to politicians on banking committees in Congress to garner their support in blocking overdraft regulation, including some donations made immediately before members publicly defended overdraft fees. You can see the full list from Accountable.US here.
Bills attempting to regulate overdrafts have stalled in Washington over the years, but some legislators have renewed the push just this week. Senators Cory Booker and Elizabeth Warren along with Rep. Carolyn Maloney have related bills currently being considered in Congress. These bills would prohibit most overdraft fees and implement transparency and disclosure guidelines.
“In 2020 alone, three of the biggest banks: JPMorgan Chase, Bank of America and Wells Fargo, squeezed nearly $4 billion dollars out of Americans bank accounts. Meanwhile in 2020, those same three banks collectively pulled in more $50 billion dollars in profits. And that was business as usual. Over the past few years, JPMorgan Chase, Wells Fargo and Bank of America have consistently raked in more than a billion and a half dollars a year in overdraft fees,” Sen. Warren said at a press conference on Tuesday. “Now the big banks might as well have held up a giant sign that said, ‘We will squeeze customers as hard as we can for as long as we can get away with it.’ We’re here today to say they can’t get away with it any longer.”
Some banks, in an attempt to save-face, have reduced or totally eliminated overdraft fees in recent years. Over a dozen banks have made changes to how they handle overdrafts. But even some regulation would save consumers nearly $17 billion annually, according to Arron Klein, a Senior Fellow in Economic Studies at the Brookings Institution.
“By definition, every overdraft fee is paid by a person who has run out of money while trying to live their life. These fees, which are effectively short-term loans, can be extremely high-cost relative to the small amount of money received by the customer, short-lived in time borrowed, and carry small chance of default. As a result, overdraft fees result in nearly pure profit for the bank or credit union. No wonder one bank CEO named his yacht ‘Overdraft,’” Klein said during a Senate Banking Committee hearing in May.
I tried to find the exact boat Klein references here but couldn’t determine which one because there are several boats named overdraft. Take your pick, I suppose. But he’s referring to former Minnesota bank TCF National Bank CEO Bill Cooper who “actively encouraged employees to dupe customers” into signing up for surreptitiously costly “services” that would result in surprise fees. The bank was so successful in its ploy that 66 percent of its customers had opted in for overdraft, triple the rate of a typical bank. In 2009 alone the bank raked in $182 million in revenue just from overdraft fees according to a CFPB lawsuit.
You can call your Representative and Senators and and tell them you want Congress to regulate and prohibit overdraft fees via the US Capitol switchboard at 202-224-3121.
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Photo via Alexandros Chatzidimos
Another way these banks steal money is to offer "free" checking for keeping a certain amount of money in the checking account and then eliminate that specific deal, putting your account under a new deal with different terms and then charging bank fees when you fall under their new limits. This seems to be a favorite of Wells Fargo but I imagine they all do it.