Rep. Carolyn Maloney, D-N.Y., has been fighting for more than a decade to ban bank practices such as the overdraft fees that spurred a Wachovia customer’s class action lawsuit in 2008.
Melanie Garcia’s complaint in federal court in Miami accused the Charlotte, N.C.-based lender, which was taken over by Wells Fargo later the same year, of re-ordering her checking account transactions so that the largest were processed first, a maneuver that maximized the number that would exceed her available balance and generate overdraft fees of $35 each.
It’s a tactic that Maloney and others view as exploitative, but her bills addressing the matter have never garnered enough support to pass. Now, with Democrats back in the control of the House of Representatives after eight years in the minority and the 2020 presidential campaign heating up, Maloney’s odds may have improved.
One of the Democrats vying to run against President Trump, Sen. Cory Booker, introduced a bill targeting overdraft fees last year, and House members quizzed CEOs of the nation’s largest banks about the charges three separate times during a lengthy Financial Services Committee hearing on Wednesday.
“We were surprised by how strongly Democrats pushed overdrafts,” said Jaret Seiberg, an analyst with Cowen Washington Research Group, which has tracked federal policy for the past four decades. “Restricting overdrafts is seen as a way to build political support,” he added, which means not only that committee votes on such bills are likely, but that congressional interest may “morph into a broader attack on the size of fees.”
The issue is one that resonates with voters, many of whom lost homes and savings during the 2008 financial crisis and resented the billions of dollars in bailouts given to large banks. Today, overdraft fees cost customers $15 billion a year, and a Consumer Financial Protection Bureau database includes more than 1,900 complaints about them.
“You’re essentially gouging your most vulnerable clients, the ones that are living paycheck to paycheck,” Maloney told the CEOs during Wednesday’s hearing, noting that many of their companies opposed her previous bill curbing over-the-limit fees and retroactive interest rate increases that was signed into law during President Barack Obama’s first year in office. That measure saved consumers roughly $16 billion a year, according to a Consumer Financial Protection Bureau report.
A separate study by the agency in 2014 found that fees for overdrafts, transactions that exceeded a customer’s available balance but were paid anyway, and insufficient funds charges, when a transaction was declined, made up the majority of checking account charges. They averaged more than $250 per customer a year.
Using agency reports, the Center for Responsible Lending, a Durham, N.C.-based advocacy group, estimated that nearly 2 million Americans pay 20 or more overdraft fees a year, totaling about $700 each.
“For a household, particularly a low-income family, $700 annually is significant, and losing these funds to overdraft fees may put needed items out of reach,” the center wrote in a May 2016 report. For a family earning $26,800 a year, half the median U.S. income, that’s more than the typical $500 spent on medicine and $743 paid for dairy products and meat.
The fees aren’t a core part of New York-based Citigroup’s business, CEO Michael Corbat told lawmakers, and Bank of America’s Brian Moynihan estimated they accounted for less than 1% of his firm’s revenue.
In that context, the charges seem to accomplish little more than “hurting the poor,” said Rep. Ayanna Pressley, D-Mass. “For a family in my district hit with a series of overdraft fees, that is the difference between a tailspin and getting by.”
In Garcia’s case, which has been litigated for years with appeals on some questions going as high as the Supreme Court, she initially described situations such as having $56.42 in her account and making two charges totaling $34.97 on Aug. 1, 2008.
Wachovia, she said, held the transactions for three days, processing them after a scheduled student loan payment of $102.63 and assessing overdraft fees on all three, for a total of $105.
“For millions of hardworking Americans, every day is a struggle. They find themselves one late check or unexpected expense away from financial freefall,” Booker said when he introduced the Stop Overdraft Profiteering Act in August. The bill was co-sponsored by Sen. Sherrod Brown, D-Ohio, who considered a presidential run himself, and the measure died at the end of the Senate’s term.
Booker had previously sent a letter questioning the decision of the CFPB under Trump appointees not to pursue overdraft regulation and compiled a report showing that the 13 U.S. banks with more than $2 billion in assets earned an average revenue of $587 million a year on overdraft fees from 2015 through 2017.
The median debit card transaction amount that triggered a fee, often $35, was just $20 and was repaid within two days, the report noted.
“Wages aren’t going up but the cost of everything else is,” Booker said. “Worse yet, overdraft fees fall on those least likely to be able to afford them, individuals for whom a $35 overdraft charge could push them over the brink into financial ruin.”