A lucrative poverty tax
Spurious insufficient fund penalties target those who can least afford them—or are just trying to enjoy a European vacation after high school
Hannah Hudson was one of the few high school graduates lucky enough to take a European summer vacation before the long slog of adulthood.
Little did she know, she’d spend a half-day wondering how to cover her next meal after a series of overdraft fees from Bank of America left her more than $100 in debt. Halfway around the globe and nine hours ahead of California, Hudson was unable to contact financial reinforcements with her parents fast asleep in Orangevale.
“[My parents] sent me an extra 40 bucks to fly home with, for food and such,” Hudson said. “Soon I found I couldn’t spend that money at all. It went straight toward paying off my overdraft fees. It’s a scary feeling—being in some new place without a dollar in your bank account.”
Hudson is just one of the millions of Americans who are having their checking accounts drained by billion-dollar banks and their taxing overdraft fees.
A recent report from the Center for Responsible Lending found that the 10 largest banks in the United States collected more than $11.45 billion in overdraft and non-sufficient fund fees from Americans just last year.
“These banks drain billions of dollars annually from their customers through abusive overdraft fee practices, severely harming poor Americans and working-class families living paycheck to paycheck,” said CRL senior researcher Peter Smith, who authored the report, in a written statement. “Instead of serving families fairly, these banks are driving their customers deeper in a hole and often out of the banking system altogether.”
In 2015, bank regulators began requiring financial institutions with more than $1 billion in assets to report their overdraft and non-sufficient fund revenues. Since then, overdraft and non-sufficient fund revenues from these banks have increased by 2.4 percent.
Not all overdraft horror stories are as desperate as Hudson’s. Although all 10 of the nation’s largest banks charge in excess of $30 in overdraft fees, the average charge is $35 per overdraft, according to CRL. Roseville resident Priscilla Montoya fell victim to such an inconvenience when she was living in San Francisco.
“I was handed a $30 charge for a $5 overdraft,” Montoya said. “Thirty bucks is whatever. I paid it off and moved on within a day. But to know that these incredibly rich banks are nickel-and-diming average people like me with these fees irks me.”
Not everyone can bear the brunt of surprise overdraft fees, especially when they come one after another. A study from last August, this one from the Consumer Financial Protection Bureau, found that low-income earners are the most frequent recipients of bank overdraft and non-sufficient fund fees. The study found that 80 percent of fees are dealt to just 8 percent of account-holders.
Such revelations—which have come to light through new regulatory requirements forcing banks to be transparent about their reliance on overdraft revenues—have prompted Democratic legislators to step in. Last month, U.S. Sens. Cory Booker of New Jersey and Sherrod Brown of Ohio introduced the Stop Overdraft Profiteering Act of 2018, which would “establish reasonable safeguards for checking account holders; restore transparency to the checking account market; and ultimately encourage banks to expand responsible small-dollar loan offerings rather than perpetuate this harmful practice,” according to CRL’s website.
Many of the bill’s proposals are indistinguishable from those of the CRL, which concluded that fees shouldn’t exceed the size of the overdraft itself and that banks should limit fees to six times a year, among other recommendations. The Democratic legislators introduced their anti-profiteering act on August 1. It has yet to have its first hearing in the Republican-controlled Senate.
Montoya speculated that because overdraft and non-sufficient fund fees often amount to insignificant quantities, the public has yet to get behind a campaign pressuring banks to amend their policies.
“For me, the fees added up to an annoyance rather than a real problem,” Montoya said. “I’m sure it’s the same for most Americans, besides the least fortunate of us. Maybe if the charges keep rising we’ll start taking more notice.”