In February of 2020 I wrote about the predatory payday lending industry, which offers very small loans at high-interest rates to desperate low-income people. The lowest-earning quarter of Americans are being taken advantage of by other institutions. Over the past few decades, mainstream financial institutions have created a host of fees and penalties designed to target and profit from their poorer customers.
The overdraft fee is one of the most common exploitative mechanisms that banks use to target the poor. The Consumer Financial Protection Bureau's new director, Rohit Chopra, announced last week that banks collected an eye-popping $15.5 billion in overdraft fees in the year that ended in February, with nearly a third of that sum coming from just three banks: Wells Fargo, JP Morgan Chase, and
It's not hard to accidentally overdraw your bank account. A child's ear infection, a car breakdown, or even a regularly scheduled utility payment can wipe out your bank balance, which is why it's so important to have a good credit score.
Over the years, banks have added a number of financial complexities on top of their overdraft policies, further rigging the system in their favor. The timing gap between payment authorizations and settlements has been used by banks to increase customers' chances of getting a lower overdraft fee.
If you're a middle-class American with three months' worth of emergency savings on hand and automatic overdraft protection on your checking accounts, this might sound crazy. Only a small portion of banking customers are affected by the exploitative overdraft fees. Less than ten percent of bank customers are responsible for most of the fees.
Capital One became the largest bank to end overdraft fees when they did so last week. Richard Fairbank said the move was intended to bring "simplicity and humanity" to banking, creating an important safety net for families.
Fairbank didn't comment on why Capital One took so long to eliminate overdraft fees. It's most likely that the bank's action happened at the same time that the CFPB started to crack down on the practice.
Capital One's move was praised by the agency, but it wasn't going to wait for other large financial institutions to follow suit. He said the CFPB will be considering a range of regulatory interventions to help restore meaningful competition in this market, rather than allowing large institutions to rely on junk fees forever.
Poor people in America are preyed on by financial institutions. Some of the largest and mostReputable banks in the nation still penalize customers for not meeting minimum-balance requirements, pester them with tiny fees to keep and maintain checking accounts, and fail to make loans available to low-income Americans, even though they have been set aside for the payday loan America needs a top-down reform of banking. Our financial institutions must help all Americans build their wealth and invest in the future if we are to help the rich get richer.
