The Senate is taking a look at overdraft fees, and how they burden working class families.
Several Senators, led by Senator Elizabeth Warren, a Democrat from Massachusetts, wrote a letter ahead of the hearing to CEOs of JPMorgan Chase
Bank of America
and Wells Fargo
urging them to end overdraft fees.
“Chase, Bank of America and Wells Fargo are making tens of billions of dollars in profits. And yet they are still squeezing families on overdraft fees,” Warren told the hearing. “If Citibank
and Capital One
can eliminate overdraft fees, so can Chase and BOA and Wells.”
The Consumer Financial Protection Bureau, which Warren helped create, promised a crackdown on overdraft fees last December after a key report by the government agency revealed that banks were making billions of dollars from overdraft fees and other non-sufficient fund fees. The report showed that JPMorgan Chase, Wells Fargo and Bank of America accounted for 44% of the profits in 2019 made by banks with more than $1 billion in assets over those fees.
“There is a difference between offering a service that will win the hand and offering a service that will kick someone while they’re down,” Chairman Raphael Warnock, a Democratic senator from Georgia, told the hearing.
He cited studies’ that found overdraft fees disproportionately hurt neighborhoods with people of color. “Customers who overdraft the most throughout the year tend to have lower income, poor credit scores and disproportionately Black and Hispanic,” Warnock said, “So [it’s a] vicious cycle.”
Such fees disproportionately impact Black and Latinx households. They are 1.9 times and 1.4 times more likely to incur overdraft fees, respectively, versus white households, a June 2021 report published by the Financial Health Network, a nonprofit organization that receives funding from Citi Foundation, concluded.
“Overdraft fees disproportionately impact Black and Latinx households. ”
In 2019, U.S. banks charged their customers nearly $15.5 billion in overdraft and non-sufficient funds fees, a report published last December by the CFPB found.
The hearing came as U.S. banks — both traditional and online —- move away from charging overdraft fees to consumers. Ally announced its plan to eliminate the fees across the board last June, becoming the first among the major U.S. banks.
Capital One and Citibank followed suit in the intervening months. Others are lowering their overdraft fees: Bank of America will reduce its overdraft fees from $35 to $10 starting from May; Wells Fargo announced plans in January slashing non-sufficient fund fees and overdraft protection fees, and offered a 24-hour grace period before charging overdraft fees.
JPMorgan Chase also announced last December that it would eliminate insufficient fund fees, and will increase the overdraft cushion from $5 to $50 in addition to a one-day grace period and early access to direct deposit.
Increased competition from the fintech companies in Silicon Valley also prompted more U.S. banks to give up overdraft fees, analysts say. As fintechs offer easier access and services online, mainstream banks have offered more fintech-inspired services in an effort to stay relevant, including no-fee overdrafts.
Thom Tillis, a Republican senator for North Carolina, said the main challenge is to understand how the market is transitioning and whether interference at the federal level is needed.
“It seems like the market forces and innovation are pushing things in the right direction,” he said. “And it always gives me pause when the government wants to come in because when the government comes in, it tends to stifle competition and stifle innovation.”
JPMorgan Chase declined to comment on the hearing and the issues raised by the Senate committee. Wells Fargo and Bank of America also declined to comment.
Spokespeople for JPMorgan Chase and Wells Fargo previously told MarketWatch that their banks provide services to help customers avoid overdraft fees.