Banks make billions of dollars off their poorest customers by charging fees for overdrafts and insufficient funds, a practice that hurts Black families and families of color especially and drives them away from banking altogether, consumer advocates say.

For the millions of Americans living paycheck to paycheck, an unexpected expense can push a bank account into the red. Popular banks exploit that vulnerability, triggering overdraft fees as high as $38.50.

The Consumer Financial Protection Bureau (CFPB) said in late 2021 that it would scrutinize banks that rely heavily on overdraft fees. The bureau had planned to address bank fees toward the end of the Obama administration but that effort lost steam under the Trump administration, CBS News reported.

Banks reported collecting $15.5 billion in overdraft fees in 2019, with close to a third of that going to Bank of America, Wells Fargo and JP Morgan Chase, according to Rohit Chopra, the CFPB’s new director.

Some banks are “hooked on exploitative junk fees that can quickly drain a family’s bank account,” Chopra said in a Dec. 1 press call. He added that the CFPB was considering “a range of regulatory interventions to help restore meaningful competition in this market.”

That same day, Capital One, the sixth-largest U.S. bank, announced that it would end overdraft fees in 2022. Bank of America, the second-largest U.S. bank by assets, soon followed suit but was unwilling to eliminate overdraft fees.

On Jan. 11, BofA said in a press release that it plans to reduce overdraft fees from $35 to $10 beginning in May and eliminate non-sufficient funds (NSF) fees beginning in February.

Overdraft and NSF fees are similar in that both are charged when you don’t have enough money in your account. But if your transaction goes through despite it exceeding the amount of money in your account, that typically results in an overdraft fee. In the case of an NSF, a bank rejects the transaction and may charge a fee.

Black households paid $1.4 billion in overdraft fees alone in 2020, according to a report from the Financial Health Network, a research and consulting firm, CBSNews reported. The report examined the financial fees charged by banks and found that Black Americans handed over $800 million in 2020 on fees for checking account maintenance, money orders and check cashing.

Such fees are driving people of color away from banking altogether, some experts said and called on federal regulators to limit fee amounts. Households of all income levels are subject to bank fees, but “the data shows those least able to afford them are disproportionately shouldering the costs,” said Jennifer Tescher, CEO of Financial Health Network.

“This exacerbates the financial distress felt by many families and contributes to a well-documented and growing financial gap in this country,” Tescher said. 

In a 2020 Bankrate study, White account holders reported paying $5 a month in bank fees, which included overdraft penalties and ATM surcharges, compared with $12 and $16 a month for Black and Hispanic customers.

Black bank account holders in 2020 reported paying $12 a month in bank fees, inlcuding overdraft and ATM fees, compared to $5 a month for whites and $16 a month for Hispanics, according to a Bankrate study. Almost 80 percent of white bank customers said they face no fees, compared with 60 percent of Black and 59 percent of Hispanics.

A Pew Charitable Trusts study in 2016 found that Blacks people and Hispanics — who represented 12 percent and 17 percent of the population, accounted for 19 percent of heavy overdrafters.

Fees have become a cash cow for banks in the past 20 years, according to Rebecca Borné, senior policy counsel at the Center for Responsible Lending.

In a May 2021 CBSNews report, Borné said that regulators should lower bank overdraft fees and not charge customers at all if their account shows a pending transaction that would cover the negative balance.

Photo: A customer departs a Bank of America ATM, in Norwood, Mass., July 15, 2019. (AP Photo/Steven Senne)

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