Still, it’s unlikely the financial services industry
will entirely wean itself off such a cash cow
anytime soon.
“For many big banks, overdraft fees are still the
steady, reliable, predictable, easy revenue that
shareholders love,” said Rohit Chopra, director
of the Consumer Financial Protection Bureau, in
remarks where he directed the bureau to more
closely examine bank overdraft practices.
Overdraft has its origins in banks providing a
service — for a fee — to customers who may
have not balanced their checkbook correctly
and wanted a bank to honor a purchase. But
the widespread use of debit cards changed
this courtesy into a routine source of revenue.
Some banks took advantage, for example, by
reordering customers’ transactions, deducting big
transactions first so that smaller payments would
then trigger multiple overdraft fees. If a customer
lacked funds in their account, a $5 purchase at a
café could end up costing them $35, because of
overdraft fees.
Overdraft fees, which started in the 1990s,
became lucrative for the industry but at
the same time made the banks a target for
consumer advocates and their allies in Congress.
After the financial crisis, Democrats put the
CFPB and other regulators in charge of reining in
overdraft fee revenues.
Frequent overdrafters, according to the CFPB,
tend to skew toward those living paycheck to
paycheck, and also are disproportionately Black
and Latino. One of the top reasons given by Black
and Latino Americans for choosing not to have a
bank account, or being “unbanked,” is that they are
trying to avoid bank fees.