Dive Brief:
- Large U.S. banks took $11.68 billion in overdraft fees out of their customers' accounts last year, the Center for Responsible Lending said, according to data released Wednesday that focused on financial institutions with $1 billion or more in assets.
- About 9% of account holders paid 84% of the overdraft fees, including a disproportionate number of Black and Latino customers, the nonprofit said.
- "Banks should not experience an unprecedented windfall as the direct result of their customers' unprecedented distress," wrote Peter Smith, co-author of the report, which advocates for a bill to prevent financial institutions from assessing overdraft fees on any transaction during the coronavirus crisis.
Dive Insight:
Mike Townsend, a spokesman for the American Bankers Association, countered the report, saying banks during the pandemic have offered "unprecedented assistance" to customers, including fee waivers and deferred payments, according to The New York Times.
Several big banks have or are planning to roll out accounts that limit overdraft fees. Wells Fargo announced in March it will launch a check-less no-overdraft-fee account, as well as an account that includes checks and limits overdraft fees to once a month, in early 2021.
Other banks have rolled out no-overdraft accounts aimed at low-income consumers, such as Fifth Third Bank's Express Banking account, which launched in 2016, and JPMorgan Chase's Chase Secure, which launched last year. Bank of America and Citi have had no-overdraft accounts since 2014.
Challenger banks, such as Chime and Varo, have also embraced no-overdraft offerings. Chime's SpotMe feature covers customers who overdraw as much as $100 past the amount in their account, while Varo covers transactions up to $50 over a user's account balance.
Wells Fargo drew fire after an August report by The New York Times revealed a policy that allowed the bank's accounts to remain open even after customers thought they had closed them, prompting some customers to be charged thousands of dollars in overdraft fees.
The Center for Responsible Lending's data comes less than two months after reports that some banks applied some customers' Treasury Department-issued stimulus checks toward their negative balances. Wells Fargo, Citi and JPMorgan Chase, among others, enacted temporary policies to ensure customers with negative account balances get their full checks.
The nonprofit is also asking federal and state regulators to bar banks from charging overdraft fees — typically, $35 per instance — during the crisis. Specifically, it wants the Consumer Financial Protection Bureau (CFPB) to issue a rulemaking deeming it an unfair and abusive practice to charge overdraft fees — or at least overdraft fees unlimited in number and amount — during the pandemic. Repeated overdraft can trigger account closures in the worst cases, potentially leaving the customer unbanked.
