Economic strains from supply chain issues and continued strain from the COVID-19 pandemic have left many Americans in dire straits. It is becoming increasingly difficult to meet the basic needs of their families, and lawmakers and regulators are rightly turning their attention to things that unnecessarily compound these challenges.
Among the biggest unnecessary challenges Americans continue to face are overdraft fees that banks levy when someone, often mistakenly, attempts to make a payment beyond the funds available in their checking account. These fees cost Americans billions each year, and now the Biden administration and lawmakers on Capitol Hill are poised to dig deeper into the matter in the months ahead.
This scrutiny comes at the perfect time, as data shows that more consumers are overdrafting their bank and credit union accounts than ever before, no doubt in large part because of the struggles we’ve all faced these last years. Considering that overdraft fees hit an all-time high in 2021 and nearly 20% of Americans overdrafted last year, it’s clear that the threat these fees pose to Americans’ financial well-being increases as they have the most difficulty.
As overdraft fees increasingly weigh on Americans more generally, it is important to note how they are having a disproportionate and disproportionate impact on low-income communities across the country. According to recent data, financially vulnerable households averaged 9.6 overdrafts in 2021 and financially able households averaged 3.9, while financially sound households averaged just two. Each individual overdraft fee may not seem outrageous at first, but combined with how often these fees affect those with limited means, it quickly becomes clear how quickly these fees can add up.
Overdraft fees also cause disproportionate harm to minority communities across the U.S. In fact, black households were 1.9 times more likely to have overdrafted their accounts than white households last year, while households Latinx were 1.4 times more likely to have discovered than white households. Overdraft fees limit the financial mobility of these communities, and barriers like this need to be addressed in the future.
Simply put, overdraft fees cause the most harm to Americans who are least able to bear the costs, and the time to get rid of the threat these fees pose once and for all is too late. Fortunately, Washington lawmakers aren’t the only ones taking note of this problem, and the fact that financial industry leaders have already taken proactive steps to reduce these fees should be a source of hope and optimism for Americans.
Ally Bank became the first major bank to eliminate overdraft fees entirely last summer, and the bank has gone a step further by implementing a new program to protect consumers against accidental overdrafts. Since Ally’s announcement, other institutions have followed suit to dismantle overdraft fees.
Given the impact of overdraft fees nationwide, I am confident that members of Congress who have the ability to bring this issue to the forefront of public attention will do so. Representatives Carolyn Maloney (DN.Y.) and Maxine Waters (D-California) have previously worked to raise awareness of the harmful effects of overdraft fees and advocated for limiting the impact they have on consumers. Now, the forthcoming dialogue and action coming out of Washington should use what industry leaders are already doing as a model for what can and should be achieved for consumers.
The economic challenges created by the pandemic, supply chain issues and other factors have exposed serious weaknesses in the way Americans receive essential financial services and these shortcomings must be addressed in order to protect our closest neighbors. vulnerable in the future. Eliminating overdraft fees is a good place to start.
Dr. Maya Cummings is the former vice president of research and programs for the Congressional Black Caucus Foundation, former chief of staff to Congressman Charles Rangel (DN.Y.), and the widow of Elijah Cummings.
The opinions expressed in this article are those of the author.