Big banks charging Americans millions in ‘exploitative’ overdraft fees on the verge of crackdown by Biden’s leading consumer watchdog
- The CFPB has announced that it will scrutinize banks that rely heavily on overdraft fees.
- Banks charge overdraft fees to protect themselves when a customer’s expenses exceed their balance.
- But banks have used the fees to generate significant income, hurting consumers’ wallets.
Overdraft fees are intended as a safety net, but for whom?
As it turns out, banks make big profits on the overdraft fees they charge consumers to make sure their purchases aren’t turned down if their spending exceeds their balance.
President Joe Biden’s main consumer watchdog wants to end this.
On Wednesday, the Consumer Financial Protection Bureau (CFPB) announced that it would begin investigating banks that rely heavily on overdraft fees. The bureau released two reports that found that the big banks continue to rely on these fees as a source of revenue and totaled $ 15.5 billion in 2019 across the industry, and the customers hardest hit by these charges. fees are often the ones who can least afford them.
“Rather than competing on transparent upfront prices, large financial institutions are always addicted to operating costs that can quickly drain a family’s bank account,” Rohit Chopra, director of CPFB, said in a statement.
âInitial pricing that appears to be ‘free’ but is offset by opportunistic penalties that take advantage of complex rules and captive customers is not a sign of a competitive market,â he added.
Chopra explained that while overdraft fees were created out of “convenience”, they quickly became the “bread and butter source of income” for many banks and put consumers in financial stalemate. As a result, the CFPB will take three distinct actions: it will take action against banks whose overdraft fees violate the law, it will prioritize reviews of banks that rely heavily on overdraft fees, and it will look at new technologies to empower consumers to exit poorly performing banks.
Just before the CFPB announced its crackdown, Capital One said on Wednesday it would remove all overdraft fees starting early next year, becoming the largest bank in the United States to announce such an action. . It will always allow its customers to obtain protection against overdrafts on their accounts free of charge.
Lawmakers have also kept banks in their sights for overdraft fees. Insider reported in May that Massachusetts Senator Elizabeth Warren grilled JPMorgan Chase CEO Jamie Dimon during a hearing on the bank collecting $ 1.5 million in overdraft fees during the pandemic, calling it ” star of the discovery show “.
A JPMorgan spokesperson told CNN on Wednesday that the CFPB report did not reflect the changes the bank had already made this year, including the elimination of insufficient fund fees and increasing the amount a customer can. withdraw before a fee is charged.
Still, Warren wants other banks to follow in Capital One’s footsteps and ensure that high overdraft fees are a thing of the past.
“Bank overdraft fees are taking billions from struggling families and even during this pandemic, the big banks have raked in billions through this abusive practice,” Warren wrote on Twitter. “It is a good initiative from @CapitalOne. Big banks like @JP Morgan should do the same. “