Predatory overdraft fees must stop
In the final weeks before a midterm election where voters are primarily concerned about the health of the economy and the impact of inflation on the cost of living, President Joe Biden’s financial regulators promised to crack down on how banks and other industries levy fees on customers — and Biden is coming reiterated the promise on Wednesday.
We strive to combat hidden “unwanted charges”, such as surprise overdraft and deposit fees, credit card late fees, hidden hotel reservation fees.
Even those termination fees that keep you from switching cable and internet plans to get a better deal.
They add up. We take action.
— President Biden (@POTUS) October 26, 2022
But Republicans on the Senate Banking Committee — four of whom are up for reelection — are fighting to preserve overdraft fees and other “junk fees” that generate tens of billions each year for their big donor banks at the expense of the nation’s most desperate. .
All Republican members of the Senate Banking Committee signed a letter sent to the Consumer Financial Protection Bureau (CFPB) last month which strongly opposed the agency’s position that it should regulate overdraft fees more tightly – the practice whereby instead of refusing a debit transaction, banks are fining account holders for going into a negative balance. Conservative senators overseeing the banking industry also take issue with the term used by the Biden administration and the CFPB to describe overdraft fees: waste.
“The CFPB has launched a relentless smear campaign against banks that offer optional overdraft services to their customers,” the letter read. “Charging fees that customers have chosen to pay should not be intrusive or illegal, and yet the CFPB seems to have developed a particular disdain for banks charging their customers for services, pejoratively calling overdraft protection “fees undesirable”.
Republicans and industry groups have tried to make junk fees a flexible and convenient alternative to payday or short-term loans, and they argue that any regulations aimed at protecting consumers “stifle innovation.” But ultimately, these fees are revenue generators for the banks, and that profit comes on the backs of the banks’ most desperate customers. Every year, banks make about 30 billion dollars on fees such as overdraft fees, NSF penalties and late fees for people who already lack sufficient funds. Since 2010, banks have garnered more than 460 billion dollarsadjusted for inflation, in overdraft fees.
As the Biden administration and the CFPB have repeatedly pledged to curb that profiteering, big banks and front groups have deployed an army of lobbyists and flooded Republicans on the Senate Banking Committee with campaign donations.
The dozen Republicans on the Senate Banking Committee have collectively received more than $3.3 million in campaign contributions from corporate PACs representing the banking and finance industry so far this election cycle. Of that total, more than $1.5 million went to the four Republican members of the committee who are up for re-election – Mike Crapo (Idaho), Tim Scott (South Carolina), John Kennedy (Louisiana) and Jerry Moran (Kansas) .
The United States Chamber of Commerce, the nation’s leading business lobby, has spent $58 million on federal lobbying efforts this year, including on overdraft fees. The American Bankers Association and various other major banks and credit unions, all of which make money on overdraft fees, have collectively spent more than an additional $16 million on lobbying.
While the House vehemently opposes overdraft fee changes or regulations claiming they would “limit consumer innovation and choice”, in reality these unwanted fees may prove even more toxic than other financial devices that attack people with insufficient means, such as payday loans.
A study by Moebs Services found that payday loans, although predatory, offer a lower median price — $17.65 — compared to the median overdraft fee of $30. Additionally, the CFPB found in 2014 that the majority of debit card overdrafts were for purchases under $24. If a purchase of $24 was paid off in a few days with a median overdraft fee of $34, it would be equivalent to a short-term loan with a 17,000% APR or annual percentage rate of charge.
A CFPB report 2021 found that even with just under 9% of consumer accounts paying ten or more overdraft fees per year, they account for nearly 80% of all overdraft revenue. More … than 92% of banks and 61% of credit unions have overdraft programs. Overdraft commissions account for almost two-thirds of commission income in the banking sector, according to the CFPB.
Junk fees tend to hit people on fixed incomes, such as retirees, particularly hard, as an overdraft fee on even a small transaction can cause a cascade of financial consequences. This has led the American Association of Retired Persons (AARP), the nation’s leading lobby group, to call on the CFPB to enact tougher regulations on these fees.
“For too long, banks and credit unions have profited by charging excessive overdraft and insufficient funds (NSF) fees that can trap older Americans in a cycle of debt or force them out of the financial mainstream” said David Certner, Legislative Counsel and Legislative Counsel. director of policy at AARP, wrote in a letter to the CFPB, adding that these fees “are among the most expensive and common fees charged by banks”.
With many seniors receiving Social Security checks on specific days relative to their date of birth, the timing of automatic payments for things like medical bills or unexpected but common medical emergencies often leads to overdrafts for Americans. aging. Other factors, such as lack of knowledge of digital banking and cognitive decline, were judged by the CFPB to be other common reasons for overdraft fees.
“I am retired and live in a rural county in Idaho. I paid a $30 NSF charge on a $4 check that the bank refused anyway,” Kathryn Anderson, a retiree from Idaho, told the CFPB by public comment. “Then overdraft charges caused my checking account to be overdrawn, which resulted in new charges for each day my account was negative. The bank caused a negative loop that cost me over $120 to fix. . »
As consumer advocates wait for broader reforms, the Biden administration has begun to take targeted action. Last month, Regions Bank, a national chain with more than 1,400 branches, was ordered to repay more than $141 million in overdraft fees and pay a $50 million fine over what the CFPB alleges. illegal overdraft and surprise charges.
To preemptively avoid punishment, some banks began to reduce fees or eliminate them altogether. In Congress, New York Representative Carolyn Maloney Overdraft Protection Actwhich would ban deceptive practices by banks and restrict how and when customers could be charged overdraft fees, has languished since its introduction in June 2021.