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5 Things Black America Needs To Know About Parasitic Bank Overdraft Fees

5 Things Black America Needs To Know About Parasitic Bank Overdraft Fees

overdraft fees
5 Things Black America Needs To Know About Parasitic Bank Overdraft Fees. Photo: iStock

Bank overdraft fees aren’t only frustrating, they are costly to consumers. Banks, however, make a lot of money from them. Banks raked in a whopping $7.2B in overdraft fees from March to September 2020, according to a study by Possible Finance

Possible Finance offers small personal loans that it promotes as alternatives to payday loans.

According to the study, the average monthly bank fee from March to September was $115.

Black bank customers were the most affected by overdraft fees. 

Here are five things Black America needs to know about parasitic bank overdraft fees.

1. Covid-19 caused rise in overdraft fees

Since the onset of the covid-19 pandemic overdraft fees have increased nearly every month, despite federal legislation that has urged financial institutions to waive overdraft fees and related bank fees. 

And during the pandemic, Blacks have received the highest number of overdraft fees. This is most likely to Black workers being disproportionately affected by unemployment during the pandemic. Job losses have been especially devastating for Black households because they have historically suffered from higher unemployment rates, lower wages, lower incomes, and much less savings to fall back on, as well as significantly higher poverty rates than their white counterparts, according to a June 2020 report by the Economic Policy Institute.


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Due to less money coming into the household, many Black bank customers are finding themselves overdrawn thus racking up overdraft fees.

2. Race and fees

There is a major racial discrepancy when it comes to the amount people pay in bank overdraft fees. Whites reported paying $5 a month in bank fees, which includes overdraft penalties and ATM surcharges, while Blacks reported paying $12 a month, according to personal finance firm Bankrate. Almost 80 percent of white bank customers said they had no fees, compared with 60 percent of Blacks who said the same, CBS News reported.

3. Black people have been getting overcharged for some time

A 2016 analysis by the University of Michigan and New York University researchers of more than 1,300 banks found that the average cost of maintaining a checking account was $190.09 higher for Blacks when compared to white customers. 

Consumers in predominantly white neighborhoods also generally require lower checking account balances to avoid fees compared with people in minority areas, CBS News reported. 

“These results are even more troubling when considered alongside racial inequalities in income and wealth— not only are black and Latinx areas served by more expensive banks, but they are home to poorer residents,” said Jacob Faber and Terri Friedline, the authors of the study.

Another 2016 study, this one by Pew Charitable Trusts, found that Black people represent an outsized share of heavy overdrafters, defined as those who incurred more than $100 in overdraft and insufficient fund fees in a year. Blacks and Hispanics accounted for 19 percent of heavy overdrafters even though they were only 12 percent and 17 percent of the population, respectively, Pew said. 

These surveys were from 2016, but the inequity in banks fees can be traced back even further.

4. Reflective of long-term inequality

Overdraft fees by banks are indicative of the long-term financial inequalities Black people in America continue to struggle under.

The Federal Reserve’s 2019 Survey of Consumer Finances, released in September 2020, found that the wealth gap has become astronomical. The median wealth for a white family was $188,200, compared to $24,100 for Black families.

Additional banking fees “just make the problem worse and take a deeper toll on Black and Brown and minority families throughout the country,” John Holdsclaw IV, board chair of the Coalition of Community Development Financial Institutions, told CNBC. CDFIs are credit unions, banks, microloan funds, or venture capital providers that provide low-income communities access to financial services.

“It just creates a perfect storm,” Holdsclaw added. “The perfect storm is on the backs of these minorities’ communities and minority families who have their accounts at these financial institutions.”

5. Alternatives to traditional banks

One way to avoid overdraft fees altogether is to change the type of financial institution you use. 

Credit unions and smaller banks are options. A 2019 study by NerdWallet found that the average credit union overdraft fee is nearly $10 less than that of large banks, AP reported.

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Community development financial institutions (CDFI) are a good option for minority communities, Holdsclaw said. There are more than 1,100 across the country, with a total of $211 billion in assets, CNBC reported. “It is built into the missions of these financial institutions that they are not going to charge enormous fees to people who are already in a low or moderate income community,” Holdsclaw said.