Even as U.S. banks struggle to repair their reputation, two of the biggest continue a practice that is unconscionable. JP Morgan Chase and Wells Fargo approve debit card transactions when account holders have a negative balance, allowing the banks to rake in $35 fees for transactions that average only $17.
They cloak this practice in the guise of overdraft "protection," even as their software systems manipulate account balancing to maximize fees. They re-order transactions to yield as many of those $35 fees as possible when a customer carries a negative balance for a day. Chase's new policy of limiting those charges to three fees per day is a miserly improvement. They can still charge a customer $102 per day in overdraft fees.
The impact of these practices is great: the biggest banks are claiming an ever greater share of the market and setting the standard for industry practices. The cost is concentrated in an ever more vulnerable population of Americans living paycheck to paycheck. That population now includes half of all Americans, according to a survey by the Financial Industry Regulatory Authority (FINRA)'s Investor Education Foundation. It is also concentrated in communities of color, where the foreclosure and unemployment crisis have eroded savings that families might have used to protect themselves from these abusive financial practices.
Unfair bank overdraft fees contribute to high levels of Americans being unbanked or under banked. Surveys find that overdraft fees are a significant reason people leave the banking system. A 2008 Harvard study found that virtually all involuntary bank account closures are caused by excessive overdraft fees. When a person closes a bank account this way, it can be difficult to open a new account in the future.
So for short-term gain these practices are causing long-term harm, both for the Americans who drop out of the system and for the banks themselves, who are chasing away their customer base.
Overall, Americans pay $24 billion in unfair overdraft fees annually. I recently joined four other leaders of national civil rights organizations in asking Chase and Wells Fargo to stop their unfair practices immediately. Those leaders included Lisa Hasewaga of the National Coalition for Asian Pacific American Community Development, Janet Murguia of the National Council of La Raza, Cy Richardson of the National Urban League, and Hilary Shelton of the NAACP.
Together, we have asked Chase and Wells Fargo to join Bank of America and Citigroup in ending overdraft fees on debit card transactions. We also asked Chase and Wells Fargo to stop re-ordering transactions to maximize fees, to limit the number and frequency of fees to six per year, and to give every customer the lowest cost option for overdraft coverage available.
If the big banks want to repair their reputations, they must earn our trust. Citibank and Bank of America do the right thing when it comes to overdrafts. Why aren't Chase and Wells Fargo?
Wade Henderson is president and CEO of The Leadership Conference on Civil and Human Rights, a coalition charged by its diverse membership of more than 200 national organizations to promote and protect the rights of all persons in the United States. The Leadership Conference works toward an America as good as its ideals.