WASHINGTON–The Washington Post editorial board is calling for regulators to take a new approach to do the “right thing” and act on overdraft fees, saying waiting on banks and credit unions to do the right thing will take too long.
Saying the “horror stories” are well known, such as a mom who goes to the store to buy milk and peanut butter but doesn’t have the money in her account, and a $5 purchase ends up costing $40 as the result of overdraft fees, which the Post said is often called the “poverty tax” and a “reverse Robin Hood scheme.”
The Post called it “welcome news” that Consumer Financial Protection Bureau Director Rohit Chopra plans to enhance scrutiny on overdraft and non-sufficient-fund fees, and credited Chopra with “driving change,” as proven by Capital One’s recent announcement it will scrap overdraft fees.
“Chief executive Richard Fairbank said it would bring ‘simplicity and humanity’ to banking. He’s right,” the Post editorial read. “Why aren’t Bank of America, Wells Fargo and JPMorgan Chase doing the same?”
How Banks Responded
The Post said its editorial board reached out to America’s biggest banks and all responded with examples of how they have tried to lessen the burden of overdraft fees. JPMorgan Chase, for example, announced that in 2022 it will give customers a day grace period before charging the fee, the Post noted.
“But the banks made it clear the fees would remain in place on checking accounts that allow them. Bank of America’s overdraft fee is $35, Wells Fargo’s fee is $35 and Chase’s fee $34,” the editorial stated, adding it “wasn’t always like this” and in the 1990s and early 2000s banks realized they could make a lot of money charging overdraft fees — and the regulators were not going to stop them.
Two Areas of Focus Recommended
“Banks and credit unions made $15.5 billion off of overdraft fees in 2019, according to the CFPB. The three biggest banks accounted for more than $5 billion of that total,” the Post added.
The Post editorialized that as regulators scrutinize overdraft fees, there should be two key areas of focus:
- First, banks where overdraft fees account for more than half of their profits deserve immediate scrutiny. “Many of these banks are small and midsize regional banks. Generating so much revenue from overdraft fees alone is a major risk to any bank, not to mention harmful to customers.”
- Second, regulators need to “spell out recommended best practices in early 2022. Here’s a good place to start: Don’t charge more than one fee per overdraft, give at least a day grace period, send the customer a text or email alert, limit the number of fees per year and don’t assess fees at all if the overdraft is under $50. These are common-sense moves that will help curb the most abusive practices.”
The Real Goal
“Eliminating overdrafts entirely should not be the goal. Many low-income consumers use this instead of turning to payday loans,” the editorial continued. “But banks should not be making hundreds of dollars in overdraft fees off of a single low-income customer.
“Ultimately, CFPB and other regulators need to make clear rules on overdraft fees,” the editorial continued. “Yes, rulemaking takes time, but waiting for all banks and credit unions to do the right thing would likely take longer.”
As CUToday.info reported here, financial institutions have begun raising their limits on overdrafts, with credit unions leading the way.