Which Bank Has The Lowest Overdraft Fees - The explosion of overdraft fees is making basic banking expensive for people living paycheck to paycheck. Banks and credit unions generate more than $34 billion in origination fees each year by one estimate. What those with money experience as 'free checking' is quite expensive for those without. Previous research has focused on who pays overdraft fees, finding that a small number of people (9%) are heavy overdrafters, who account for 80 percent of fees. What has not been as carefully explored is whether this is only a small part of the overall business model of banks, or whether overdraft has become the main source of profit for some banks. In fact, some small banks have become super-cost giants, relying on excessive government fees as their main source of profit. These banks are indeed chartered check cashers. Why do banking regulators tolerate this?
For six banks, overdraft income accounted for more than half of their net income. Three had overhead income higher than total net income (meaning they were losing money on all other aspects of their business). First National Bank of Texas (doing business as First Convenience Bank) earned more than $100 million in overdraft fees yet posted an annual profit of just $36 million in 2020. Academy Bank and Woodforest National Banks similarly made more money through overdraft revenue than profit in 2020 .All three were completely dependent on overage fees for any profit in 2019 as well. This is not one year; this is their business model. Armed Forces Bank, Arvest Bank, and Gate City Bank all depend on overdraft fees for more than half of their profits.
Which Bank Has The Lowest Overdraft Fees
Five of these six banks are national banks, regulated by the Office of the Controller of Cash (OCC). Arvest Bank is a state-chartered institution and its main federal regulator is the Federal Reserve (St. Louis County), which seems to tolerate Arvest's increasing dependence on overdrafts as they go from 54 to 62 percent of total profits between 2019 and 2020. These regulators shows that allowing banks to have a business model that relies on a single fee, charged only to consumers who run out of money, does not protect an 'operational safe, sound and fair banking system.
How To Get Overdraft Fees Refunded Quickly
It is worrisome that regulators tolerate banks that rely primarily or entirely on overdraft fees for profitability. Most of these are banks regulated by the Office of the Comptroller of the Currency (OCC), but others are federally regulated primarily by the Federal Reserve and the FDIC has reserve authority over all insurance organizations. From a consumer protection perspective, these entities function more like check cashers and payday lenders than banks. Offering security and durability, relying on this extremely expensive fee is not sustainable. Don't take my word for it: Oliver Wyman sounded the alarm about overdrafts: “What should banks do about overdrafts? We believe that the crisis accelerates the need to replace obsolete products and exchange unsustainable value."
These are small banks, and most would be considered very small. Five had between $1 billion and $3 billion in assets (about one hundredth the size of JPMorgan Chase). However, these banks may not even be the worst abusers of overdrafts. The smallest banks (those with assets totaling less than $1 billion) and most credit unions are not required to report their overdraft fee income at all. Researchers and consumers have no idea how dependent they are on overdraft. Unless bank regulators ask these questions, regulators may not know themselves. Regulators must collect and publicize overdraft data for all banks and credit unions regardless of size.
In principle, overdraft fees are intended to prevent depositors from overdrawing their accounts. It is an advantage for customers if your purchase was not declined at checkout. However, overdrafts are extremely expensive: $35 to pay for a $25 purchase that is repaid in two days equates to an annual percentage rate (APR) of more than 25,000 percent. Granted, APR isn't always a useful tool for comparing products, but it's one that most consumers are familiar with, and a real loan on those terms would never be approved. That's why the decision to label an overdraft as a fee instead of a loan—even though it's an extension of small-dollar, short-term credit—has significant regulatory consequences. Therefore, future regulators could reverse it.
In practice, overdrafts are the business model for these six banks and maybe more. These entities are not really banks in the traditional sense of taking deposits, making loans and helping customers and the economy. They are a combination of payday lenders and check cashers whose business model relies on a single product with a sky-high annual interest rate paid only by people who are short on money.
A Few Small Banks Have Become Overdraft Giants
Bank and credit union regulators must crack down on these institutions that are not operating in a safe or sound manner. They should start by placing any organization for which premium stock exceeds 50 percent of their total profits under a strict consent decree. If the organization cannot change its business model, then its ability to maintain its charter is in serious doubt.
Regulators should reconsider whether the overdraft product is a loan, not a fee. The Consumer Financial Protection Bureau should also be involved. Borrowing money and then getting it back, plus something extra, is economically a loan. Calling it a fee may exempt it from certain regulations, but it does not change its nature.
Finally, all banks and credit unions should be required to offer a basic, low-cost product with no overage fees. Bank On and the FDIC have both drafted requirements for these types of accounts. The American Bankers Association called on all banks to offer them. Regulators and Congress should require it. This is a much more effective way of handling the problem of the unbanked than other ideas, such as postal banking, because the main reason the unbanked cite for not having an account is cost, not location or branch hours.
Life before and especially during the pandemic is forcing those on the economic edge to make difficult financial choices with serious health consequences. Now more than ever banks must be a source of support for people, not fee generators. Banks that depend on overdrafts for their profits are nothing more than chartered check cashers. Regulators are supposed to protect that charter; now, they must act. During 2020 — the height of the pandemic — American consumers were charged $12.4 billion in overdraft fees by our nation's banks. Most of these fees were paid by individuals living paycheck to paycheck or with chronically low balances. To live up to our name at Bank, we knew it was time to act as a force for change.
Texas Bank Overdraft Fee Lawyer
Why? Early in the pandemic, the Bank temporarily waived overdraft fees as part of a larger relief program to help our customers cope with the stress of COVID-19. Little did we know what a powerful impact our decision would have.
We've received thousands of emails from customers telling us how much the 2020 overdraft waiver has meant to them and their families. One mother who was drowning in bills told me how that extra money enabled her to take care of her children when she began to lose hope.
The overwhelming sense of relief we experienced was so great that our leadership team decided to permanently eliminate overdraft fees. It was a small but significant step with an immediate impact - a step I was happy and, frankly, proud to make.
Since we launched Bank in 2009, we've worked tirelessly to make banking simple, transparent and as stress-free as possible. There is no doubt that the abolition of overdraft fees will have a positive impact on all the Bank's customers.
Why Do Banks Charge Overdraft Fees?
The why is simple. Getting it right is our passion. Every day we research, design and build digital financial solutions that make a difference in the lives of our customers. Bank redefines the financial services industry and helps nearly 8.5 million individuals achieve their financial goals.
Eliminating overdraft fees is one of many ways we empower consumers about financial matters. After all, financially vulnerable and Black and Brown households have been paying a disproportionate percentage of overage fees for far too long. The Consumer Financial Protection Bureau found that just 8 percent of all accounts nationwide pay a whopping 75 percent of all overcharges and undercharges.
Our research shows that removing financial complexity is the best way to help people move up the financial continuum. That is why at the Bank you will not find overpayments or monthly maintenance fees; minimum balance requirements; or charges for incoming wire transfers, standard or expedited ACH transfers or official checks.
At the Bank, processes are simpler. Jargon is reduced. And equipping you on your financial journey is our priority as we guide, simplify and demystify what it takes to be financially independent. Because there is an understanding of everything, money improves a person's finances and quality of life.
Bank Of America, Wells Fargo Scrap Some Overdraft Fees As Regulatory Scrutiny Grows
Diane Morais is President of Consumer and Business Banking. He joined in 2008, and is responsible for driving the growth,
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