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On the Oppression of Overdraft Fees
Banks commit fraud, customers pay the price in excessive and unnecessary fees
As America’s largest banks testified before committees in the U.S. House and Senate this week, a new analysis by Accountable.us notes these same banks are profiting handsomely off of overdraft fees. Additionally, the nation’s big banks are increasingly embroiled in suits over defrauding customers.
Ahead of the testimony, a new analysis from Accountable.US has found that in the first half of 2022, just three of these “mega banks” — Bank of America, Wells Fargo, and JPMorgan Chase — have together reported over $37 billion in net income while reaping $7.8 billion in revenue from service charges on consumers’ deposit accounts, including over $1.6 billion from overdraft fees. Meanwhile, these three banks have spent $25.7 billion on stock buybacks and shareholder dividends, representing 69.4% of their net income over this same period.
I’ve written before about the billions in revenue generated each year from bank overdraft fees.
Recent CFPB research showed that banks continue to rely heavily on overdraft and non-sufficient fund (NSF) fees, which cost Americans an estimated $15.5 billion in 2019.
Here’s a handy chart from earlier this year that shows bank overdraft fee policies.
In addition to this week’s hearings in Congress, the Consumer Financial Protection Bureau (CFPB) is also examining overdraft fees and working to push banks to eliminate them.
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”
The Accountable.us analysis also pointed out the various fraud cases against the big banks:
Making matters worse, these three banks (Bank of America, Wells Fargo, and JPMorgan Chase) have faced at least $5.3 billion in fines and settlements since 2020, including $460.7 million in 2022 so far.
Overdraft fees charged to low-income consumers would more than cover the fraud fines paid by these banks. Which essentially means that the big banks are practicing fraud and counting on their most financially stressed customers to cover the cost of that fraud.
As Accountable further notes regarding reliance on overdraft fees:
This practice continues to especially harm low-income consumers, who are often living paycheck-to-paycheck, or those relying on the timely receipt of benefit payments. These penalties are a persistent obstacle for many to achieve economic stability in their own lives or businesses. When so many families struggle to get ahead while dealing with this needless extra financial burden, it holds back the economy for everyone.
It’s important to note, too, that banks make all sorts of claims about the benefits of overdraft fees, but the reality is, the only benefit is to the banks — and if these banks can be hundreds of millions in fraud settlements each year, they can reduce or eliminate overdraft fees and still make huge profits.
Here’s an example of a claim about fees and the reality — again, provided by Accountable:
RHETORIC: The U.S. Chamber of Commerce has argued that eliminating overdraft would “make it more difficult for consumers to manage their finances.”
Yes, that’s right, banks often order transactions in such a way as to force a customer to incur an overdraft or multiple overdrafts, thus increasing fees to the bank.
Here’s an example:
A customer has three checks or debits in the amounts of $20, $45, and $100. The customer’s account balance is $80. Rather than paying the $20 and $45 transactions and then declining or charging an overdraft fee on the $100 transaction, banks will often process the $100 transaction first, leaving the customer’s account in the negative and resulting in two additional overdraft charges.
The bottom line: Overdraft fees harm consumers and pad the accounts of already profitable banks.
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A Warning to Banks About Zelle and Fraud
I’ve written before about the fraud susceptible peer-to-peer money exchange known as Zelle.
The money-sending app is widely available and offered by banks as a means of sending money from one account to another — like Venmo or Cash App, only offered right inside your bank’s app or website.
The problem has been that fraud is prevalent within the app and often, the transactions are not reversible.
Now, Congress is taking a look — and potentially holding banks accountable for the fraud that is commonplace through Zelle.
“. . . trade associations and Hill lobbyists say they expect Democrats on the Senate Banking and House Financial Services committees to focus on how peer-to-peer payment systems have made it easier for scammers to fraudulently induce unsuspecting customers into making irreversible payments.”
“. . . the House Financial Services Committee’s majority staff produced a memo for Wednesday’s hearing that name checks Zelle and cites a New York Times story that alleged “fraud has flourished on the platform.” The Senate Banking Committee’s Democratic staff on Monday released a pair of “snapshots” on PNC and Truist that linked to a similar report.”
Will Zelle face reckoning? Will the banks that facilitate peer-to-peer money exchange by way of Zelle also be held accountable?