The Biden administration is taking action to do away with damaging overdraft fees banks charge customers. The move comes in an effort to alleviate burdensome money-sucks that already cash-strapped Americans are crippled by.
“For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said in a statement. “Banks call it a service — I call it exploitation.”
As ESSENCE previously pointed out, ninety-five percent of the consumers who paid $12.4 billion in overdraft fees in 2020 were “financially vulnerable” and disproportionately Black and Latinx, according to the 2021 FinHealth Spend Report. Among those financially vulnerable households with checking accounts, 43% averaged 9.6 overdrafts during 2020, resulting in annual overdraft fees of hundreds of dollars per household on average.
With Biden’s proposed changes, overdraft fees could drop to as little as $3. Typically they can average up to $34 per overdrawn transaction, quickly amassing hundreds of dollars in negative balances for customers.
Some financial institutions, like Ally long recognized the burden overdraft fees can impose on customers and decided to do away with them altogether despite the potential loss of revenue they’d face.
“Nationwide, more than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances – precisely the people who need help stabilizing their finances,” said Ally Financial’s CEO and President Jeffery Brown said in a 2021 release. “Eliminating these fees helps keep people from falling further behind and feeling penalized as they catch up.”
He added: “We know that money can be a source of stress and confusion, and we try to simplify that for people. Overdraft fees can be a major cause of anxiety. It became clear to us that the best way to relieve that anxiety was to eliminate those fees.”