Democratic senators focus on overdraft fees at hearing


Diving brief:

  • Democrats on the Senate Banking Committee examined banks’ charging of overdraft fees during an audience Wednesday, saying the charges disproportionately impact working-class and non-white families.
  • Republican lawmakers and industry officials have countered that many customers rely on overdraft for short-term credit, and that recent voluntary decisions by some banks to waive overdraft fees prove that lawmakers have failed to need to target this practice.
  • In common letters released Wednesday before the hearing, Sen. Elizabeth Warren, D-MA, and two other lawmakers asked the CEOs of JPMorgan Chase, Bank of America and Wells Fargo why they continue to charge overdraft fees.

Overview of the dive:

As many big banks move away from overdraft fees, Democratic lawmakers continue to lambast industry proponents who they say are squeezing the nation’s most vulnerable consumers through punitive fee-based models.

“We know these types of fees affect people of color at a disproportionate rate,” said Sen. Raphael Warnock, D-GA, who chaired the subcommittee hearing on financial institutions and consumer protection. “Studies have found that, on average, banks with branches in predominantly black neighborhoods charge more for overdraft services. Additionally, customers who discovered the most throughout the year tend to have lower incomes, poor credit scores, and are disproportionately black or Hispanic.

Research by the Consumer Financial Protection Bureau (CFPB) shows that less than 9% of consumer accounts pay nearly 80% of all overdraft income.

Republicans and industry representatives have countered that overdraft is a valuable service for many Americans.

“Data shows that more than 60% of all overdrafts occur when consumers intentionally use the service,” said Sen. Thom Tillis, R-NC. “Comments by some that financial institutions are tricking unwitting customers into these products, when consumers are presented with opt-in provisions upfront and later notices explaining that they can terminate services at any time, seem without foundation.”

David Pommerehn, general counsel for the Consumer Bankers Association, urged lawmakers to provide alternatives to overdraft fees, such as small loans, for consumers with short-term cash options.

Warren, for his part, has long expressed distaste for overdraft fees. Calling JPMorgan CEO Jamie Dimon “the star of the overdraft show” during a hearing last May, Warren challenged Dimon to pledge to repay the $1.5 billion she said the bank had collected in overdraft fees during the pandemic. Dimon wouldn’t.

In Wednesday’s letter, Warren asked Dimon how much the bank has charged customers for overdraft fees since announcing changes to its overdraft policies. She also asked how customers are notified of their ability to decline overdraft, whether there is a waiting period before overdraft protection takes effect, and whether there are limits on the number of fees overdraft that a customer can accumulate. Sen. Cory Booker, D-NJ, and Rep. Carolyn Maloney, D-NY, also signed the letter. Maloney has introduced the Overdraft Protection Act to every Congress since 2009.

Lawmakers have made similar requests for information to Bank of America and Wells Fargo — the former pledged in January to cut its overdraft fee from $35 to $10; the latter said it would eliminate the NSF fee and institute a 24-hour overdraft grace period.

“If Citibank and Capital One can eliminate overdraft fees, Chase and BofA and Wells,” Warren said during the hearing, dropping the names of two of the top 10 U.S. banks. Capital One announced in December that it would drop the fee; Citi did the same in February.

Warren asked Aaron Klein, a senior fellow at the Brookings Institution and a witness at Wednesday’s hearing, how much money Bank of America, Wells Fargo and JPMorgan Chase make in revenue per year.

“They make billions,” Klein said. “In 2019, before the pandemic, JPMorgan Chase earned over $2 billion in overdraft fees, Wells Fargo around 1.7 and Bank of America just over 1.5.”


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