Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—Banking Committee Democrats urge nation’s largest banks to reduce, eliminate overdraft fees, (Mar 28, 2022)

By Thomas G. Wolfe, J.D.

Commending actions already taken by several large banks, the letter from the five Senate Democrats exhorts more large financial institutions to follow suit.

United States Senators Sherrod Brown (D-Ohio), Chair of the Senate Banking Committee, and Rev. Raphael Warnock (D-Ga), Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, Committee members Jack Reed (D-RI) and Chris Van Hollen (D-Md), along with Sen. Cory Booker (D-NJ) have jointly transmitted a letter to seven of the largest financial institutions in America, urging them to lower or eliminate their overdraft fees for customers. Applauding the actions already taken by “Capital One and Citi to eliminate overdraft fees, as well as Bank of America’s decision to substantially reduce these fees,” and by “Capital One, Citi, Wells Fargo and Bank of America” to “completely eliminate nonsufficient fund (NSF) fees,” the senators strongly encourage the executives of the seven financial institutions receiving their joint letter to “quickly follow” the lead of these other banks “by significantly reforming” their own overdraft policies and practices.

The March 24, 2022, letters from Sens. Brown, Warnock, Reed, Van Hollen, and Booker were sent to Charles Schwab Corporation, JPMorgan Chase & Co., PNC Financial Services Group Inc., TD Bank, Truist Financial Corporation, U.S. Bancorp, and Wells Fargo.

Impact of overdraft fees on banking system. In their respective letters to the bank executives, the senators reference a report by the Consumer Financial Protection Bureau finding that: (i) “nearly 80% of overdraft-related fees are charged to only 9% of accounts, who tend to carry low balances—averaging less than $350—and have relatively low monthly deposits;” and (ii) the “average consumer with overdraft coverage pays $260 in overdraft and NSF fees each year.” The senators maintain that these fees “not only drain bank accounts, but also push consumers out of the banking system and into the arms of unscrupulous and unsupervised lenders who are all too willing to overcharge them for similar services.”

According to the five senators, this dynamic contributes to “millions of Americans” being “underbanked or unbanked.” Essentially, the letters assert, “by charging overdraft fees, financial institutions are undermining consumers’ confidence in the banking system they need consumers to participate in.”

Recommendations, requests. “We are hopeful that recent industry fee changes—which include eliminating NSF fees, providing a $50 or $100 cushion before charging an overdraft fee, providing a 24-hour grace period, and charging only one fee per day—mark the beginning of a shift towards a fairer and more transparent fee structure,” the senators wrote. Along these lines, the respective letters to each of the seven financial institutions request a response by April 7, 2022, “detailing its plans to significantly reduce or eliminate overdraft fees.”

Companies: Bank of America; Capital One; Charles Schwab Corporation; Citi; JPMorgan Chase & Co.; PNC Financial Services Group Inc.; TD Bank; Truist Financial Corporation; U.S. Bancorp; Wells Fargo

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