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Bank fees slam low-income households, study finds

Hefty banking fees are hurting low-income households, especially families of color, according to consumer advocates.

Hispanic and Black households paid a total of $3.1 billion and $1.4 billion, respectively, in overdraft fees alone last year, according to a recent report from the Financial Health Network, a research and consulting firm. The report, which examined a range of financial fees, also found that Black Americans forked over $800 million last year on fees for checking account maintenance, money orders and check cashing, while Hispanic families spent $1.1 billion on those services. 

Such fees are driving many people of color away from banking altogether, some experts said in calling on federal regulators to limit fee amounts. Although households of all income ranges are subject to bank fees, "the data shows those least able to afford them are disproportionately shouldering the costs," Financial Health Network CEO Jennifer Tescher said in a statement.

"This exacerbates the financial distress felt by many families and contributes to a well-documented and growing financial gap in this country," Tescher said. 

Racial disparity in bank fees

Financial Health would like to see policymakers reference the report when making future decisions on regulating bank fees, Meghan Greene told CBS MoneyWatch. The report jibes with other research on how heavy bank fees impact households of color. 

In a 2020 Bankrate study, White account holders reported paying $5 a month in bank fees, which included overdraft penalties and ATM surcharges, compared with $12 and $16 a month for Black and Hispanic customers. Almost 80% of White bank customers said they face no fees, compared with 59% of Hispanic and 60% of Black customers.

A 2016 analysis by researchers at the University of Michigan and New York University found that the average amount of account maintenance fees "varied widely by race," and that the average costs of opening and maintaining a checking account were cheaper in predominantly White neighborhoods. Among the more than 1,300 banks surveyed, the average cost of keeping a checking account was $262.09 higher for Hispanic customers, $190.09 higher for Black Americans and $25.53 higher for Asian Americans when compared to White customers. 

Another 2016 study by Pew Charitable Trusts found that people of color represent an outsized share of heavy overdrafters, defined as those who incurred more than $100 in overdraft and insufficient-funds fees in a year. Blacks and Hispanics accounted for 19% of heavy overdrafters even though they were only 12% and 17% of the population, respectively, Pew said. 

Cash cow for banks

Big U.S. banks have generated about $9 billion annually in revenue from overdraft fees, ATM and other fees in recent years, according to the Center for Responsible Lending. Fees have become a cash cow for banks in the past 20 years, said Rebecca Borné, senior policy counsel at the center. 

Plans by the federal Consumer Financial Protection Bureau to address bank fees toward the end of the Obama administration lost steam under the Trump administration. Since then, "Both the banking regulators and the CFPB have really done nothing meaningful to address this problem," Borné said. 

In an interview with CBS MoneyWatch this week, CFPB officials did not say whether the bureau plans to examine bank fees, including their disproportionate impact on low-income communities. The Biden administration has nominated a new CFPB director, Rohit Chopra, who still needs to be confirmed by the U.S. Senate. 

Regulators should lower their overdraft fees and not charge customers at all if their account shows a pending transaction that would cover the negative balance, Borné said. Some banks charge an additional fee when customers carry a negative balance for an extended period of time. 

"Now that the [CFPB] will be getting new leadership, we hope that the agency will once again prioritize a comprehensive rule to these problems," she said. 

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