By CultureBanx Team
- In May, Bank of America is cutting overdraft fees from $35 to $10
- People of color are paying more than 2x the amount in banking fees than white Americans
The second largest U.S. bank by deposits, is finally reducing its account overdraft fees. Bank of America (BAC 1.74%) is cutting those pesky overdraft fees from $35 to $10 starting in May. When you look at the Black community, they make up 18.2% of the unbanked and 31.1% of the underbanked group in the U.S., according to the Federal Deposit Insurance Corporation. Reducing overdraft fees could help Bank of America have a bigger stake with this demographic and start helping to close the racial wealth gap.
Why This Matters: Trying to make a dollar out of fifteen cents is only getting harder for the largest consumer banking franchise in the country, especially because overdraft fees provide a good source of income. Bank of America noted that by cutting overdraft fees, this will decrease revenues the bank earns by 97% since 2009 in this category. Many banks froze the fees they charged customers during the first year of the pandemic, and the industry still booked record profits. In 2020, underbanked consumers spent $30 billion in bank overdraft fees.
A Bankrate survey found that Black adults report shelling out an average of $12 a month for checking accounts at banks or credit unions and Hispanics are paying $14 a month, on average. Additional banking fees heavily contribute to the growing racial wealth gap. The Federal Reserve’s 2019 Survey of Consumer Finances, found the median wealth for a White family was $188,200, compared to $24,100 for Black families and $36,100 for Hispanic families.
Lisa Servon, a professor at The New School, found consumers preferred payday lenders because using bank fees turned out to be unclear and more expensive. “The banking industry needs to develop different fee and service structures designed to accommodate lower income depositors,” said Servon.
Last month the Consumer Financial Protection Bureau came out and stated it is looking at fees including overdraft, which it estimates netted banks $69 billion in the third quarter of 2021, and will issue new guidance aimed at curbing banks’ reliance on them.
“We have good financial solutions for clients without them having to rely on overdraft, but we will still have overdraft if it is needed,” Bank Of America’s Holly O’Neill in an interview.
Other banks are also trying to get ahead of regulation around fees. Capital One Financial (COF -0.50%) will no longer charge accounts for not having sufficient funds to cover drafts. JPMorgan Chase (JPM -6.15%) said it would give customers more leeway before charging fees. Regional banks including Ally Bank (ALLY -0.23%), PNC (PNC -1.33%), and Santander are among the big regional banks to effectively eliminate overdraft fees starting this year.
What’s Next: The bank will also drop its bounced check policy in effort to appease customers. In February, Bank of America will also stop charging insufficient funds fees.
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