As many as 1 in 4 U.S. households are unbanked, with high banking fees among the reasons that consumers say they avoid signing up for any financial services with a bank. The alternatives, such as check cashing services, are also expensive, but the fees charged by big banks often add up to much more. Overdraft fees in particular can be devastating for families who live paycheck to paycheck.
With the average charges per overdraft approaching $35 a pop, such fees often occur at the worst times for people — as the global pandemic has proven. Today, Citi, the fourth-largest bank in the U.S., has pledged to stop this practice.
By this summer, Citi says it will eliminate overdraft fees, returned item fees and similar charges in a bid to expand “financial inclusion.” The company claims it has already minimized overdraft fees for the past 20 years. Nevertheless, with this news, Citi stands out for being the first U.S. “mega bank” to stop what critics have long described as a “predatory” banking practice that hurts the poorest customers the most. Banks can quibble over whether overdraft fees are a significant revenue stream for them or not, but the truth is that the billions in revenues that these fees generate largely falls on the backs of the working poor.
Of course, the ever-evolving banking market has something to do with this shift. Banks today have plenty of competition, including credit unions and online banking services, many of which have either minimal or zero fees: Aspiration and Greenwood are among such options.
According to data from the Consumer Financial Protection Bureau (CFPB), Citi generated $70 million from overdraft fees and similar charges for the first nine months of 2021. That may seem like a lot, but it certainly pales in comparison to its competitors, several of which raked in hundreds of millions of dollars from overdrafts, with one bank reaching the $1 billion mark.
Citi’s announcement follows the lead of other banks that have taken similar measures. Capital One, for example, said last December that it would nix those charges and provide overdraft protection for free. Last month, Bank of America also said it plans to reduce overdraft fees, which would reduce such revenues by 97 percent from 2009 levels. Ally stopped imposing overdraft fees during the height of the pandemic, then last year the bank decided that it would eliminate them for good.
Image credit: Joshua Lawrence via Unsplash
Leon Kaye has written for 3p since 2010 and become executive editor in 2018. His previous work includes writing for the Guardian as well as other online and print publications. In addition, he's worked in sales executive roles within technology and financial research companies, as well as for a public relations firm, for which he consulted with one of the globe’s leading sustainability initiatives. Currently living in Central California, he’s traveled to 70-plus countries and has lived and worked in South Korea, the United Arab Emirates and Uruguay.
Leon’s an alum of Fresno State, the University of Maryland, Baltimore County and the University of Southern California's Marshall Business School. He enjoys traveling abroad as well as exploring California’s Central Coast and the Sierra Nevadas.