Overdraft fees convince people to close their checking accounts. They drive people to alternative financial services. It isn't an accident that Americans paid $11.4 billion in overdraft fees in 2016. Through our policy-making, we have permitted a system to develop where a small share of consumers pay an outsized share of the costs of having a payments system. These practices are widespread. They can be seen in the terms and conditions of checking accounts at big banks, small banks, and even credit unions. Our economy is increasingly digital, but in spite of that, so many people are convinced that they can't afford to participate.
Let's review the scale of the problem, starting with the big banks. In 2016, America’s three largest banks collected almost more than $5 billion in overdraft fees all by themselves.
· Wells Fargo received $1.776 billion in overdraft fees.
· JPMorgan Chase collected $1.925 billion in overdraft fees.
· Bank of America garnered $1.653 billion in overdraft fees.
These numbers would be higher if the FFIEC’s data included other types of overdraft-related charges in these results. For example, due to the way the data universe is defined, these sums do not include overdraft fees paid by businesses for business checking accounts. Because of how books are kept, extended overdraft fees are defined as interest and not as fees.
Overdraft fees are a silent killer, and they do a lot of killing: $11.4 billion exceeds the gross domestic product (“GDP”) of 51 countries. Revenues recorded from overdraft at the three largest banks outpaced the GDP of 34 countries.
In the span of one unfortunate day, overdraft charges can do lots of damage to the savings of a working family. Each time a person debits their account – and not just the first time they cross into the red – they are vulnerable to receive a fee of as much as $41. To make it worse, all too often these charges happen in sequence so that a person will be hit with several fees on the same day.
If the account remains in the red for more than a few days, then many banks will add on an “extended overdraft charge.” Some banks will charge as many as ten overdraft fees in one day.
They Make Exceptions
In some cases, banks elect to waive the occasional overdraft fee as a courtesy. If you ever get a notice of an overdraft, you should always call your bank to ask to have the charge removed.
I spoke with the CEO of a bank about this topic last year. He remarked that in the previous quarter, his bank had waived 1/3rd of its overdrafts.
Personally, I sense that the collective generosity among the decision-makers at most banks not random. Most likely,
Make no mistake about it - banks are not about to give these fees up. While the big banks yield the most, the smaller banks draw upon the fees for more of their overall business. In some cases, small banks rely upon overdraft for almost half of their business.
Sometimes news reports lay bare just how much some bankers adore the overdraft. One CEO of a large bank named his boat “The Overdraft!”