It’s likely that most credit and debit cardholders have at some time made a transaction that the funds in the account are not enough to cover, even if it is as small as $5 dollars or less.
Such a distraction would mean receiving a hefty overdraft fee when the bank covers the transaction, a practice under fire from consumer advocates, congressional lawmakers and now a coalition of attorneys general led by Attorney General Letitia James of New York. York.
In January, Bank of America offered its customers fee relief. The nation’s second-largest bank (ranked by total assets) said it would reduce its overdraft fee from $35 to $10 starting in May, in addition to eliminating its non-sufficient funds (NSF) fee in February.
It’s time for a banking system that doesn’t unfairly punish our most vulnerable.
@jpmorgan, @Chase, @BankofAmerica, @usbankand @WellsFargo must do the right thing and eliminate overdraft fees that hurt our communities, especially low-income and communities of color.– NY AG James (@NewYorkStateAG) April 6, 2022
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An NSF fee is charged when the bank declines a transaction, such as a bad check, that it knows will create a negative account balance.
But James and a multi-state coalition are demanding that the big banks go further and eliminate the fees altogether. The group is calling on CEOs JPMorgan Chase, Bank of America, US Bank and Wells Fargo to desist from imposing overdraft fees on consumer bank accounts.
In a letter to each financial institution, James urged that overdraft fees be lifted this summer in order to create “a fairer and more inclusive consumer finance system.”
The New York Attorney General’s Office cited studies that have shown that overdraft fees have disproportionately affected families and communities of color by creating debt they cannot pay.
“High and excessive overdraft fees have financially hurt the most vulnerable New Yorkers,” James said in a statement.
“Working families and low-income New Yorkers cannot afford to continue to be affected by this unfair and punitive practice, while banks reap huge profits. I’m calling on the nation’s largest consumer banks to do the right thing.” and thus eliminate overdraft fees. We need a fairer and more inclusive banking system that supports all New Yorkers, “he added.
James pointed out that banks will even charge up to $35 for a purchase of $5 or less.
HIGH RATES HARDEST VULNERABLE GROUPS AND GROUPS OF COLOR
A Center for Responsible Lending study of overdraft-related fees charged in 2019 found that more than $11 billion in fees were charged, with 84% of the fees assessed to consumers with the lowest average account balances.
Another study by the PEW Charitable Trust noted that more than 90% of such fees are paid by a small subset of consumers, who typically pay three or more fees per year while earning less than $50,000.
Reports found that consumers of color were disproportionately affected by these fees. The consequences are devastating for the financial health of consumers and, in worst-case scenarios, result in individuals losing access to banking services.
Despite this well-known consequence of overdraft practices, these fees are still big business for big banks, according to a recent study released by the Consumer Financial Protection Bureau (CFPB).
James noted that JPMorgan Chase, Bank of America, US Bank and Wells Fargo are among the banks that tend to impose what he described as disproportionate fees.
According to the CFPB, three of these institutions collected 44% of total overdraft and overdraft fees in 2019 among major banks.
“The elimination of overdraft fees by these four institutions would dramatically improve access to free and no-fee banking options for millions of New Yorkers and consumers across the country,” the statement read.
Earlier this year, Citibank announced it would eliminate overdraft fees, following a similar announcement late last year by Capital One. Citibank is the largest US bank to take this step.
James made the call in conjunction with attorneys from California, Connecticut, the District of Columbia, Delaware, Hawaii (along with the Office of Consumer Protection for Hawaii, Illinois, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey , North Carolina (all except Bank of America), Oregon, Pennsylvania, and Washington.
Bank of America’s fee cuts are not the first in the banking industry, which has come under fire from consumer advocates and congressional lawmakers. Capital One announced in December that it would completely eliminate overdraft and NSF fees by early 2022, and in June, Ally Bank, the nation’s largest digital bank, eliminated overdraft fees on all of its accounts. In mid-2019, Discover pioneered the elimination of all fees on certificates of deposit and checking, savings and money market accounts.
Most overdraft fees are paid by a small fraction of the bank’s customers: 8 percent of customers incur nearly 75 percent of all such fees.
Overdraft and NSF fees represent approximately 75 percent of customers’ total checking account fees and average more than $250 per year.
The transactions that lead to overdrafts are usually quite small. For debit card transactions, the average amount that leads to an overdraft fee is $24.
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