The Consumer Financial Protection Bureau (CFPB) released a report on Dec. 1 showing details from its investigation into what it calls "abusive overdraft fees" by banks. This report was released as Capital One announced that it’s eliminating all overdraft and non-sufficient fund (NSF) fees for its consumer banking customers.
The CFPB's report showed that banks have become increasingly reliant on overdraft and NSF revenue, which the agency said reached an estimated $15.47 billion in 2019. Additionally, three of the top-ten banks — JPMorgan Chase, Wells Fargo and Bank of America — brought in 44% of the total.
"This welcome research yet again illustrates the need to put an end to abusive overdraft fees – especially given that these fees are borne predominately by those who can least afford them," Rachel Gittleman, Consumer Federation of America financial services outreach manager, said on Dec. 2. "Consumers cannot wait for banks to individually put an end to this practice, like Capital One announced yesterday. The cost is just too high – overdraft fees can cost consumers hundreds in a single day and can push people out of the banking system, exacerbating financial exclusion."
Financial data found that 80% of all providers’ overdraft revenue comes from less than 9% of consumer accounts, according to the CFPB report. These consumers have average account balances of $350 and pay 10 or more overdrafts per year. The average overdraft fee is nearly $35, according to a study from the Center for Responsible Lending.
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Capital One becomes first to remove overdraft fees
Capital One's announcement is a major step for the banking industry as the institution is the only top-10 bank, and the sixth retail bank in the U.S., that has made this move to eliminate these fees.
"The bank account is a cornerstone of a person’s financial life," Richard Fairbank, Capital One founder and CEO, said. "It is how people receive their paycheck, pay their bills and manage their finances. Overdraft protection is a valuable and convenient feature and can be an important safety net for families. We are excited to offer this service for free."
Experts say this move will help consumers who are the most vulnerable to paying extra fees to financial institutions.
"Capital One’s complete elimination of overdraft and NSF fees is a landmark moment for American families," Lauren Saunders, National Consumer Law Center associate director, said. "This move by Capital One will have tremendous benefits for the most vulnerable consumers. It’s critical we keep working to make the banking system more inclusive and fair for all."
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Will 2022 become the year for open banking?
The idea of open banking, which allows access and control of consumer banking accounts through fintech companies and third-party apps using application programming interfaces (API), is rising in popularity. Now the CFPB is pushing the initiative, saying linking financial information to service providers would prevent consumers from becoming trapped with their bank.
"Unfortunately, switching bank accounts isn’t easy. It involves new account numbers, new debit cards, updating direct deposit, updating auto-debits, and much more," CFPB Director Rohit Chopra said on a press call. "If America can shift to an open banking infrastructure, it will be harder for banks to trap customers into an account for the purpose of fee harvesting."
Now experts say that as the number of third-party providers that are data sharing consumers’ financial account information increases, the open banking ecosystem could see significant breakthroughs in the year ahead.
"The CFPB’s remarks this week prove that open banking is slowly but surely maturing in the U.S., Vanni Parmeggiani, GoCardless director of open banking and real-time payments, said. "We saw foreshadowing of this with Biden’s executive order this summer to encourage competition in the financial industry, and Chopra’s comments show that the concept as a whole is gaining momentum.
"As regulators continue pushing in this direction, we expect that 2022 could be the year of the great bank opening – especially as the difference in pace between the U.S. and other countries becomes more obvious," Parmeggiani continued.
Business models are shifting and consumer data sharing is on the rise, which could change the future of banking over the coming year. However, if you are struggling financially now, a personal loan could help you pay down high interest debt. Contact Credible to speak to a personal loan expert and get all of your questions answered.
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