Dollar researcher asks: Why are banks really getting rid of overdraft fees?

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As a child, I was a very picky eater. I’d order a cheeseburger at Steak ‘n’ Shake and coyly ask the waiter to skip the toppings one by one: “No tomatoes or onions, please. Also, no pickles. Oh, sorry, can I have that without the mustard, too?”

Fortunately, my palate enlarged later – one of the many changes of growth. But even as an adult, I’m still surrounded by change. Recently, for example, I keep reading stories about her banks change their policies on Overdraft fees…or eliminate them completely.

It’s happened a lot: Ally announced it would get rid of overdraft fees in June 2021, then Capital One in December 2021. Bank of America, Wells Fargo, and City modified their rules last year.

I used to remove ingredients from burgers because I didn’t like the taste of it; I’m less clear about why financial institutions have suddenly decided to switch their approach to overdraft fees. Like, I suppose it’s not out of the goodness of their hearts… right?

Why banks Is that true Cancellation of overdraft fees?

First, let’s clarify the terminology. When I spend more money than I have on current account, I can encounter two similar but different types of charges. The overdraft fee begins when the bank accepts the fee, pays it and my balance becomes negative. An insufficient funds fee, or NSF fee, appears when a bank denies the charge, and effectively decides not to pay it.

It usually costs about $30. However, they do add up… especially because banks can charge the fee multiple times in one day.

NSF fees and overdrafts are a huge source of profit for banks. in 2019, financial institutions got $15.5 billion in NSF and overdraft fees from their customers. Even at the height of the pandemic in 2020, when many banks suspended NSF/overdraft policies to support people during an economic downturn, they still racked up $8.84 billion in fees.

“Historically, they were promoted as a courtesy to consumers,” says Rachel Gittleman, director of financial services outreach for the Consumers Federation of America. “They are not anymore. It is a way for organizations to get revenue.”

There is clearly a big financial reason for banks not wanting to eliminate fees. So what’s behind the hub? Mostly public pressure, according to Gettelman. The practice is attracting an increasing amount of attention – and people are angry at what they learn.

for example: The Daily Show with Trevor Noah an act Slice on overdraft fees in August. Within a month, the YouTube video had 1.3 million views and 2,400 comments… none of which were kind to Banks.

“You see CEOs getting criticized on TikTok” for profiting from overdraft fees as well, says Joel Schwartz, a former banking executive who founded DoubleCheck Solutions, a fintech company focused on improving the NSF/overdraft fee system. It’s a bad look, and people aren’t happy: “It’s seen as, ‘Hey, listen, you’re making a lot of money from this — but it comes at the expense of the consumer,'” he adds.

And this is to say nothing of the growing regulatory pressures.

The Consumer Financial Protection Bureau is back in full force after two uneventful years under President Donald Trump, and CFPB Director Rohit Chopra is on his way for blood. Chopra – out of money One of the Changemakers chose the editorial – Overdraft fees began to be called “junk mail fees”. He began Choking Due in December 2021…

…which, as you may remember from the beginning of this article, was fortuitously followed by announcements from several banks of changing overdraft rules.

TL; DR: Fees “have been under a lot of fair scrutiny lately, and that, along with federal and state regulators taking a fresh look at overdraft fees,” started a movement of sorts, says Gittleman.

The trend is very much based in reality. While Research has shown Only 9% of accounts are repeat offenders, meaning they overdraft 10 or more times a year, and this segment of the population generates nearly 80% of all overdraft revenue. Black, Hispanic, and youth consumers are particularly affected.

“These fees are disproportionately borne by those who have the least to lose,” says Gittleman, adding that unbanked Americans cite these fees as reasons for leaving the system. “The cost to the consumer is much higher than what it costs the bank or financial institution to cover.”

One of the most unpopular aspects of overdraft fees is that they add up. They’re also often affected by transactional rearrangements, where the bank moves around arranging my payments in order to maximize the amount of money I need to cough up.

Let’s say I have $100 in Arithmetic, and i need to pay the water bill of 15usd, the gas bill of 60usd and the wifi bill of 25usd. I do it in that order, and I feel fine because I know I’ll get paid tomorrow – but no! I forgot my $40 electric bill.

Instead of running an overdraft on just that last transaction (the one over my $100 limit), and having them owe only a $30 fee, the bank can redistribute my payments from largest to smallest. They will debit my account from $60 and $40 Invoices First, he charged an overdraft fee on my $25 wifi bill and a $15 water bill – which made me pay a $60 overdraft fee.

Schwartz Double check It allows customers to rearrange transactions themselves, giving people more transparency and control over their banking choices because “the last thing you want is payments being declined,” he says.

Also, if you don’t want to risk overdraft fees at all, you can opt out through your bank. Just know that your card may be declined if you try to use it without enough funds in your account.

bottom line

Banks shun overdrafts and NSF fees largely because of public pressure and the threat of regulation…not just because they randomly decided to offer me something solid. darn.

Dollar world

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