Democratic Members of the U.S. House Committee on Financial Services and Stakeholders called Congress and President Joe Biden to universally end bank overdraft fees during a hearing last month.
The argument against the introduction of overdraft fees – a fee that a bank’s customer pays when their account has reached a negative balance – has grown in recent months, during which a number of institutions leading financial institutions have reduced or completely eliminated these fees. The Consumer Financial Protection Bureau (CFPB) has published a report in December 2021 on its own investigation of fees as well, showing that banks have become increasingly dependent on them and revenue from insufficient funds fees (NSF)
Jeremie Greer, co-founder and chief executive of the economic group Liberation in a Generation, told the hearing that overdraft fees are “a high-cost form of abusive credit”.
“To put it into perspective, the CFPB found that the majority of overdraft fees were incurred on transactions of $24 or less and were refunded within three days,” Greer said. “This means that an overdraft fee of $34, if billed as a loan, would have an annual percentage rate of 17,000%. This is in no way representative of a fair and inclusive financial market. We recommend that Congress and the Biden administration act to end unwanted fees such as overdraft and insufficient funds fees.”
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EXPERTS SAY CFPB CUTTING DISCOVERY FEES COULD HARM CONSUMERS
Overdraft fees disproportionately affect people of color, say Democrats
Democrats stressed the importance of investigating overdraft charges during the hearing, saying they disproportionately affect black communities.
“The current scale and growth of overdraft and insufficient funds fees has drawn the attention of consumer groups, this committee and regulators,” said House Financial Services Committee Chairman Ed Perlmutter ( D-Co.). “In an average year, consumers in the United States pay about $10 billion to $12 billion in overdraft fees and insufficient funds fees. And only 9% of consumers account for 80% of those overdraft fees.
“These types of fees have a disproportionate impact on people of color,” Perlmutter continued. “Studies found that banks with branches in predominantly black neighborhoods charged more for overdrafts on average, and black customers are overrepresented among those who paid more than $100 in fees in the past year. “
Other Democrats agreed, saying banks have been charging “excessive overdraft fees” for too long. Rep. Maxine Waters, (D-Calif.) added that she is “very disturbed that colored consumers pay twice as much in fees as white consumers”.
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CAPITAL ONE ELIMINATES OVERDISCOVERY FEES, THE CFPB INVESTIGATES UNIVERSALLY TO END THESE “ABUSIVE” FEES
Republican Representatives Defend Overdraft Services
In stark contrast, during the hearing, Republican lawmakers said the CFPB’s report on overdraft fees may not be what they seem, and banks provide valuable services to their customers through overdraft protection.
Blaine Luetkemeyer, a member of the consumer protection subcommittee, said some of the CFPB data showing banks’ reliance on overdraft fees is from 2014, and the bureau’s own data suggests financial institutions are not dependent. too many overdraft fees.
“The truth is that overdraft is a legitimate short-term liquidity product that provides a vital service to consumers,” he said. “At a time when 50% of Americans would struggle to afford a $400 emergency expense, the actions of this committee and financial regulators are aimed at reducing consumers’ ability to access short-term liquidity financial products. “
Many banks, including Bank of AmericaCapitalOne and citibank, have eliminated or reduced their overdraft and NSF fees. They have also implemented balance alerts for credit and debit card transactions to notify consumers when their available balance drops below a certain amount.
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