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U.S. Rep. Carolyn Maloney (D-NY), along with U.S. Sens. Elizabeth Warren (D-MA) and Cory Booker (D-NJ), is calling on three major banks to discontinue their overdraft fees, which they said disproportionately harm low-income Americans.
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Maloney, Warren, and Booker are urging JPMorgan Chase, Bank of America, and Wells Fargo, specifically, to end their use of overdraft fees. These three financial institutions accounted for 44 percent of overdraft and non-sufficient fund fees collected by big banks in 2019. The lawmakers are urging these banks to follow other banks that have completely eliminated overdraft fees in recent years.
“Overdraft fees are one of the ‘most common exploitative mechanisms big banks use to target the poor’… Overall, the discrepancies in who pays overdraft fees, and how heavily the penalties are levied against them, amount to a ‘tax on the poor, an extraction from the country’s poorest Americans to its wealthiest banks,’” the lawmakers wrote in a letter to three banks.
According to the Consumer Financial Protection Bureau, 79 percent of all overdraft and non-sufficient funds fees were levied against only 9 percent of account holders. Further, they cited another study that found that most consumers who paid overdraft fees and more than 80 percent of those considered heavy over drafters had trouble meeting regular financial obligations within the last year.
During the pandemic, big banks reported a spike in overdraft fees. In the fourth quarter of 2020, banks collected $2.3 billion in overdraft fees, up 64 percent from the second quarter of that same year. JPMorgan Chase generated more than seven times as much in overdraft fees per account than other competitors, charging a total of $1.5 billion in overdraft fees in 2020, the lawmakers said.
The lawmakers said these fees have squeezed minority communities the most. In 2020, 95 percent of banks’ overdraft fees were paid by “financially vulnerable” consumers, who are disproportionately Black and Latino. Black households are 1.9 times more likely, and Latino households are 1.4 times more likely, to have overdraft fees than White households, they said.
The lawmakers are asking each bank to answer a set of questions about how they are continuing to profit from these fees by May 18.
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