Advocates at Consumer Federation of America (CFA) are calling on banks across the nation — especially the biggest banks with the greatest reach — to end the practice of charging fees for overdrafts. The push from CFA comes a day after Capital One announced it will stop charging the fees.
“This welcome research yet again illustrates the need to put an end to abusive overdraft fees — especially given that these fees are borne predominately by those who can least afford them,” said Rachel Gittleman, Financial Services Outreach Manager at Consumer Federation of America. “Consumers cannot wait for banks to individually put an end to this practice, like Capital One announced yesterday. The cost is just too high — overdraft fees can cost consumers hundreds in a single day and can push people out of the banking system, exacerbating financial exclusion.”
Gittleman is referring to research from the Consumer Financial Protection Bureau (CFPB) indicating that overdraft revenue reached a total of over $15 billion in 2019, with the biggest banks — JPMorgan Chase, Wells Fargo, and Bank of America — bringing in 44% of that total.
Earlier, the CFPB found that nearly 80% of all overdraft revenue is borne by less than 9% of consumer accounts whose account balances average $350 paying 10 or more overdrafts per year. The average overdraft fee is nearly $35, while the most common transaction to trigger overdrafts are debit card transactions and the overdrafts average for those transactions is just $20, according to the Center for Responsible Lending.
“Although the CFPB plans for cracking down on illegal overdraft practices through supervision and enforcement are welcome, the CFPB should enact a rule requiring all banks and credit unions to end this destructive practice that does far more to hurt consumers than to help,” Gittleman continued.
“Overdraft and NSF fees are one of the leading reasons that people are unbanked, either because past overdrafts put the consumer on an account screening list that prevents them from opening new accounts, or because the fees make it too costly to maintain an account,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.
CFPB Director Rohit Chopra has indicating at least some willingness to consider a regulatory move that would end the practice of charging fees for overdrafts.
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said Chopra. “We will be taking action to restore meaningful competition to this market.”