Review: Banks took $11B in overdraft fees in 2019
Large U.S. banks took $11.68 billion in overdraft fees out of their customers’ accounts last year, even before the pandemic kicked off an economic crisis, according to research by the Center for Responsible Lending.
Vulnerable people were by far the hardest hit: 9% of account holders paid 84% of the overdraft fees, according to the review, which focused on banks with assets of more than $1 billion. Those customers tended to carry low balances, averaging less than $350.
The organization said banks should halt overdraft fees during the pandemic.
Peter Smith, a researcher who co-wrote the report, said that overdraft fees were a source of distress for many families even in the best of times and that the coronavirus pandemic only magnified their effects.
The group, which supports policies to improve access to the financial system for poor and marginalized groups, urged banks to waive overdraft fees voluntarily but said it was also backing a proposal to ban such fees during the pandemic.
A spokesman for the American Bankers Association, Mike Townsend, said banks across the country were providing “unprecedented assistance” to customers affected by the pandemic, although the specific actions vary by bank. “This includes fee waivers, deferred payments and other accommodations depending on the customer’s individual circumstances,” he said.
The group supplied a list of the banks, many regional, that have offered help. Some specifically said they were offering to stop overdraft fees for a particular time period or on a case-by-case basis.
Overdrafts have already been an issue during the pandemic. Customers of some banks were unable to get access to the full amount of their stimulus payments because they had a negative balance, but other financial institutions made the full payments available to customers even if they had balances that were under zero.
Repeated overdrafts can trigger account closures, amplifying problems for low-income consumers — including blacks and Latinos, who are already far more likely to lack access to banking services. In the worst cases, banks used overdraft fees — typically $35 — to strip all the money out of a low-balance account and then closed it, leaving the customer without access to banking services.
Last year, multiple Wells Fargo customers told The New York Times that they continued to accrue overdraft fees even after they were told that their accounts would be closed. Customers said overdrawn accounts were kept open beyond their stated closure date and racked up charges when the bank’s automated system tried to remove money to make a recurring payment.
The practice prompted Sen. Elizabeth Warren, DMass., to ask the bank for an explanation. The bank said it was looking into the matter.
According to the American Bankers Association, Wells Fargo’s assistance to customers during the pandemic included waived fees. But it did not specify what types of fees.