Banks are literally counting on you not having enough money in your account to cover your expenses. For many banks, this means they hit you with an overdraft fee, which typically costs from $30 to $35.
For customers living paycheck-to-paycheck, overdraft fees are a “penalty for being poor,” said Pete Smith, a senior researcher at the Center for Responsible Lending, a consumer advocacy group.
These fees disproportionately affect black and Latinx households, who, as of June 1, are 1.9 times and 1.4 times more likely to charge overdraft fees, respectively, than white households. report good Published by the Financial Health Network, a non-profit organization that receives funding from the Citi Foundation.
In 2019, banks charged US customers $15.47 billion in overdraft and non-sufficient funds fees, according to a report published Wednesday by the Consumer Financial Protection Bureau.
,These fees disproportionately affect black and Latinx households, which are 1.9 times and 1.4 times more likely to charge overdraft fees, respectively, than white households.,
The same day the CFPB released its report, Capital One COF.
According to a memo from the bank’s CEO, Richard Fairbanks, it announced that it will “completely eliminate overdraft and non-sufficient funds (NSF) fees for all Capital One consumer bank customers.”
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The CFPB report said banks are “very heavily” dependent on revenue from fees. JPMorgan Chase JPM,
Wells Fargo WFC,
and Bank of America Bac,
44% of total overdraft fee revenue collected by banks with assets of at least $1 billion in 2019.
,‘Instead of competing on quality service and attractive interest rates, many banks have become accustomed to overdraft charges to feed their profit model’,
All three banks did not respond to Businesshala’s request for comment. Citigroup declined to comment; It charges a $34 overdraft fee.
Spokesmen for JPMorgan Chase and Wells Fargo previously told Businesshala that their banks offer services to help customers avoid overdraft fees.
Wells Fargo said it offers accounts with no overdraft fees. A JPMorgan spokesperson told Businesshala that the CFPB’s data does not reflect changes made earlier this year to “substantially” increase “the amount a customer can overdraft before incurring an overdraft fee.” The Wall Street Journal reported that the bank also eliminated its insufficient funds fee earlier this year.
Will Capital One’s move to eliminate overdraft and insufficient funds fees cause other banks to cut their own?
Smith said it is “good news” that Capital One has got rid of these fees. “I expect more banks to follow his lead,” he said, predicting that some banks will succumb to the pressure that Capital One’s move is to eliminate fees.
Capital One followed in the footsteps of the online bank associate, which stopped charging overdraft fees altogether in June, citing toll fees that could be charged to Blanc and Latino families.
Smith said one of the reasons many banks haven’t stopped charging is because they’ve included the fees they collect in their revenue models. “It’s an easy, steady stream of money,” he said.
Meghan Greene, director of research at FHN, said Capital One’s move is “the most recent sign that the financial services industry is moving toward prioritizing the financial health of consumers.”
But “institutional change is not enough, regulatory change is needed,” Smith told Businesshala.
CFBP director Rohit Chopra had promised just that.
“Instead of competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit models,” he said in a statement. Statement Published on Wednesday.
“We will take action to restore meaningful competition in this market.”