Banking

Lawmaker examination of overdraft magnifies as market advises care

WASHINGTON — Congressional Democrats’ examination of banks and their overdraft charge programs is magnifying, even as market agents ask legislators to check out options to limiting the charges.

At a consumer-focused subcommittee hearing Wednesday, a number of Democrats on the Senate Banking Committee slammed some banks’ dependence on the charges. Sen. Raphael Warnock, D-Ga., who chaired the hearing, thanked the banks that have actually downsized their overdraft programs in current months however explained that he thought issues continue in other places in the market.

“Lowering onerous fees is something I will keep pushing for through collaborating with financial institutions and, when necessary, through legislation,” Sen. Raphael Warnock, D-Ga., states.

Bloomberg News

“We must hold financial institutions accountable when they juice their profits off the backs of struggling, vulnerable Americans,” Warnock stated, “and ensure that they are not looking at these customers as easy marks to be taken to be taken advantage of with onerous or opaque fees.” 

David Pommerehn, basic counsel of the Consumer Bankers Association, affirmed that retail banks are “working diligently to provide access to safe, affordable products.”

“Outside of overdraft, few options remain for consumers to meet their cash-flow needs within the highly regulated banking industry,” Pommerehn stated in ready remarks. 

Pommerehn recommended that legislators check out other alternatives to lower the danger that banks or their consumers rely too greatly on overdraft charges, consisting of the more comprehensive support of bank-issued small-dollar loans. “A recent bipartisan [Government Accountability Office] study highlighted the fact that banks are hesitant to offer such loans in part because of ever evolving regulatory changes,” he stated. 

Only one Republican legislator spoke throughout the subcommittee hearing: Sen. Thom Tillis of North Carolina, who usually safeguarded banks’ usage of overdraft charges on the premises that some consumers intentionally depend on them as a kind of short-term credit that they might not have the ability to gain access to in other places. 

“What do you think of the characterization of this as a ‘junk fee’?” Tillis asked witnesses at one point, referring to an ongoing inquiry into unnecessary bank fees by the Consumer Financial Protection Bureau. “It appears, to me, to serve a purpose.” Pommerehn agreed.

Sen. Elizabeth Warren, D-Mass., followed up on a letter she published earlier on in the day that took aim at the overdraft profits of three of the country’s biggest megabanks.

“Three of the country’s most significant banks — JPMorgan Chase, Bank of America and Wells Fargo — still have not removed overdraft charges,” Warren said in a question posed to another witness on the panel, the Brooking Institution’s Aaron Klein. “Can you give us an idea [of] how much money they are raking in from these fees every year?” 

“They’re making billions,” Klein responded. “In 2019, before the pandemic, JPMorgan Chase earned over $2 billion in overdraft fees, Wells Fargo about $1.7 [billion], and Bank of America, a bit over $1.5 [billion.]” 

Warren pointed to policy changes announced by Capital One Financial and Citigroup since late 2021 that would eliminate their overdraft charges entirely. “If Citibank and Capital One can eliminate overdraft fees, so can [JPMorgan] Chase and BofA. and Wells,” she said. 

In a 50-50 Senate vulnerable to the threat of filibuster, which requires most legislation to have 60 votes of support to proceed, lawmakers appear unlikely to force significant changes on banks’ overdraft programs in the near future. But Sen. Warnock, in closing the hearing, suggested that it was something Democratic lawmakers should consider in the near future.

“Lowering onerous fees is something I will keep pushing for through collaborating with financial institutions and, when necessary, through legislation,” Warnock said.



Gabriel

A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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