The second largest US bank by deposits is finally lowering its overdraft fees. Bank of America is cutting those pesky overdraft fees from $35 to $10 starting in May. If you look at the black community, according to the Federal Deposit Insurance Corporation, they make up 18.2% of the unbanked group and 31.1% of the unbanked group in the US. Reducing overdraft fees could help Bank of America have a larger share of this demographic and help close the racial wealth divide.
The breakdown you need to know: Trying to turn fifteen cents into a dollar is only going to get harder for the country’s largest consumer banking franchise, CultureBanx noted, especially since overdraft fees are a good source of revenue. Bank of America found that lowering overdraft fees will reduce the bank’s revenue in this category by 97% since 2009. Many banks froze the fees they charged their customers in the first year of the pandemic, and the industry was still posting record profits. In 2020, underbanked consumers spent $30 billion in overdraft fees.
A Bankrate survey found that black adults spend an average of $12 a month on checking accounts with banks or credit unions, and Hispanics spend an average of $14 a month. Additional bank charges are a major contributor to the growing racial wealth divide. The Federal Reserve’s 2019 Survey of Consumer Finances found that the median wealth of 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 that consumers preferred payday lenders because using bank fees proved unclear and expensive. “The banking industry needs to develop different fee and service structures designed to accommodate lower-income depositors,” Servon said.
finesse-ing financial fees: Last month, the Consumer Financial Protection Bureau came out and said it was reviewing fees, including overdrafts, which it estimated netted banks $69 billion in the third quarter of 2021, and would issue new guidance aimed at reducing bank dependency to contain them.
“We have good financial solutions for customers without having to rely on overdrafts, but we will still have overdrafts when they are needed,” Bank of America’s Holly O’Neill said in an interview.
Other banks are also trying to stay one step ahead of fee regulation. Capital One Financial will no longer debit accounts if they do not have sufficient funds to cover bills of exchange. JPMorgan Chase said it would give customers more leeway before charging fees. Regional banks like Ally Bank, PNC 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 to reassure customers. In February, Bank of America will also stop charging underfunding fees.