Banks engage in unfair practices to drive up overdraft fees
WASHINGTON, D.C. – Today, the Center for Responsible Lending (CRL) released Unfair Market: The State of High-Cost Overdraft Practices in 2017, a report analyzing the overdraft fee revenue generated by banks and the overdraft practices of the 10 largest banks across the United States. According to Federal Deposit Insurance Corporation (FDIC) data, banks with over $1 billion in assets collected more than $11.45 billion in overdraft and non-sufficient funds (NSF) in 2017.
"These banks drain billions of dollars annually from their customers through abusive overdraft fee practices, severely harming poor Americans and working class families living paycheck to paycheck,” said CRL Senior Researcher Peter Smith, who authored the report. “Instead of serving families fairly, these banks are driving their customers deeper in a hole and often out of the banking system altogether. Over the last 15 to 20 years, many financial institutions have betrayed the trust of their account holders by replacing what was once an occasional accommodation with an exploitative system of routine high-cost overdraft fees that drive account holders deep into debt.”
Since 2015, the FDIC has collected and released information about these harmful penalty fees from banks that have $1 billion or more in assets. The $11.45 billion figure does not represent the total overdraft fees collected because it does not include data collected by small community banks or credit unions, which are not required to report their fee volume to the FDIC.
The report analysis found that:
- Large banks reported charging consumers $11.45 billion in overdraft and NSF fees in 2017, up $10 million from the 2016 total and up 2% from 2015. Nine billion dollars of this amount was earned by the 20 banks that charged the highest volume of fees.
- All 10 of the nation’s largest banks charge overdraft fees in excess of $30, although a few do not charge these fees on point-of-sale (POS) and/or ATM transactions.
- More than one of the top 10 largest banks still engage in each of the following abusive practices: charging sustained/extended overdraft fees in addition to per-transaction overdraft fees; artificially changing the order of debit transactions in order to trigger more overdraft fees; and allowing five or more overdraft fees to be charged per day to customers.
Last week, U.S. Senators Cory Booker (D-N.J.) and Sherrod Brown (D-Ohio) introduced the Stop Overdraft Profiteering Act, a bill that would establish reasonable safeguards for checking account holders; restore transparency to the checking account market; and ultimately encourage banks to expand responsible small dollar loan offerings rather than perpetuate harmful overdraft fee practices. Overdraft fees, typically $35 each, are frequently triggered by small debit card transactions that are much less than the fee itself.
Recently, the Consumer Financial Protection Bureau (CFPB) leadership announced that the agency will halt its rulemaking plan to address bank overdraft fee abuses. The agency had studied overdraft fees since 2012 and the results have been clear: overdraft programs use unfair and abusive practices to exploit financially vulnerable customers.
Last August, the CFPB released a study that exposed the extent to which large banks’ abusive overdraft fees drain working families’ checking accounts. The study found that nearly 80% of bank overdraft and NSF are borne by only 8% of account holders, who incur ten or more fees per year, with many of those customers paying far more. For one group of hard hit consumers, the median number of overdraft fees was 37, nearly $1,300 annually. The study also confirmed that overdraft fees on debit cards can lead to extremely high cumulative fees for consumers.
Financial institutions typically charge an overdraft fee when a customer’s account lacks sufficient funds to cover a transaction, but the institution chooses to pay the transaction anyway. Overdraft fees can be triggered by debit card POS transactions, ATM withdrawals, electronic bill payments, and paper checks. Some institutions do not charge overdraft fees on POS or ATM withdrawals—simply declining the transaction at no cost when the account lacks sufficient funds—but many banks do. The bank typically charges a fee, averaging $35 for each individual overdraft transaction it pays, even when the customer overdrafts by a very small amount. The institution repays itself for the overdrawn transaction, as well as the high fees(s), directly from the customer’s next deposit, in effect “jumping the line” ahead of any other planned transactions or debts the consumer has.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.