Banks are cashing in on overdrafts

America's big banks make more than $ 11 billion in overdrafts and related fees every year, and even more records could be broken in 2020 due to the uncertainty caused by the pandemic. You expect customers to be disorganized and tight on cash - or both. But now these practices are being scrutinized more closely. The Center for Responsible Lending (CRL) recently released a report that concluded that the largest banks are "engaging in a series of abusive practices that collectively drain massive sums of money from their customers' checking accounts."

The majority of these fees, according to the CRL, "are shouldered by the banks' weakest customers, often pushing them out of the banking system entirely". Last year, the report found that JPMorgan Chase took in revenues of $ 2.1 billion from overdraft fees and insufficient funds, followed by Wells Fargo and Bank of America (BAC) with $ 1.7 billion and 1, respectively .6 billion dollars. According to the CRL, TD Bank's overdraft fees account for about a third of their interest-free earnings. Banks usually charge overdraft fees when customers overdraw their checking account.

Rather than allowing a debit card to be declined or a check to fail, the bank will cover the difference and charge an overdraft fee, usually around $ 30 to $ 35. Back in March, Senators Cory Booker and Sherrod Brown tabled a bill called the Stop Overdraft Profiteering Act that would prohibit banks and other financial institutions from charging overdraft fees during the pandemic. However, the bill did not make it into an economic stimulus package or even into the Senate for a vote. "Millions of hard-working Americans have been thrown into financial uncertainty because of this unprecedented global pandemic. For these people and those who were vulnerable before the pandemic broke out, an overdraft fee of $ 35 can result in financial freefall," Booker said in one Explanation. The CRL's report found that by mid-May, none of the top 10 banks had offered sustained relief on overdraft fees during the crisis. On the contrary, in August TD Bank agreed to pay $ 122 million to settle claims related to overdraft abuse. Now the topic has become part of the presidential campaign. As part of his tax plan, former Vice President and Democratic presidential candidate Joe Biden is signaling that if elected, such abuse could come under even closer scrutiny. Although Biden didn't make a specific promise in his plan to crack down on overdraft fees, CNN reported that he could do so. According to his tax plan, which is basically just overturning Trump's 2017 corporate tax cuts, the top ten banks would see corporate tax increases of $ 7 billion a year. But to make all of this a reality, Biden wouldn't just have to win the presidential election: the Democrats would have to take over the Senate and retain their power in the House of Representatives. In the end, perhaps the best chance to stop the abuses of America's largest banks is through competition. In the past few years, a number of fintech startups have emerged that are challenging the status quo of banking. Some of them offer standard checking accounts with no overdraft fees.