Overdraft Fees Spin Big Money For Banks


In today’s edition:
🏦 CFPB moves on overdraft fees
🌍 Inflation is a global phenomenon
🎓 We should know more about student loan relief soon
😕 Mixed projections on stock markets

CFPB Moves On Overdraft Fees

Back in 2021, the Consumer Financial Protection Bureau (CFPB) released a pair of reports focused on overdraft and insufficient funds (NSF) fees. The contents were startling. The CFPB found that these fees reached an estimated $15.47 billion in 2019 and composed over ⅔ of bank fee revenue.

These fees land disproportionately on small depositors who live paycheck to paycheck and carry a minimal balance in their accounts. They are magnified when predatory lenders demand the right to withdraw directly from a borrower’s account. If the borrower doesn’t have the money the lender may attempt repeated withdrawals, racking up large amounts in fees.

With overdraft fees averaging around $35 per instance, that can quickly run up fees that an already struggling depositor may not be able to pay.

On June 16 the CFPB announced that it has sent a detailed questionnaire to 20 financial institutions, part of an effort to gain a better understanding of overdraft and NSF fees and their impact on consumers. They do not intend to publish the information, but it will be shared with other regulators and may be used to develop new controls on overdraft and NSF fees.

The questions asked indicate a particular concern with frequent overdrafters: clients who pay more than six or more than 12 overdraft fees a year. The CFPB does note that some banks and credit unions are moving to reduce or even eliminate these fees, though this may be due to competition from other fintech providers.

For some smaller banks, overdraft fees account for a majority of profits, and in some cases, banks may be hiking fees that target lower-income customers to offer more competitive loan and savings interest rates while maintaining profitability.

We don’t know what action the CFPB will take, but regulators are finally noticing these fees and their disproportionate impact on low-income Americans.

Inflation is a Global Phenomenon

Inflation is the word of the moment in the US. Prices are soaring, and key commodities like gasoline and food are leading the way. There’s a lot of debate and a lot of anger, with different political groups eager to blame their rivals.

Most of the US discourse treats inflation as an American phenomenon with roots in the US, so the data in a recent Pew Research Center study on global inflation rates may come as a surprise for many.

The study found that today’s inflation is a truly global phenomenon, with the US inflation rate over the last 4 years coming in 19th among 42 countries surveyed. Israel, Greece, and Italy lead the pack in the four-year rate, with Turkey’s 54.8% rate, verging on hyperinflation, the highest current rate. Other current rate leaders include Russia and Brazil.

Today’s inflation seems shocking because it comes after an extended period of extremely low inflation rates. From 1991 to 2019–28 years — inflation averaged only 2.8%, well below historic averages, and exceeded 5% only four times. That led many Americans to assume that inflation cycles were a thing of the past and no longer a concern.

What the Pew data make starkly clear is that economic phenomena are increasingly global, and not the result of actions or policies in any single country. That makes it harder to assign blame, but it also makes it harder to develop coherent policy responses.

What else is going on in the world of personal finance? Let’s look.

Student Debt Relief Announcement Expected Soon

Multiple sources are reporting that President Biden has announced that a decision will be coming soon on the long-discussed student debt relief measure. Biden has publicly backed away from the $50,000 per borrower forgiveness proposal recommended by some members of his party and is widely believed to support a more modest proposal of $10.000 per borrower.

Forbes reports that Biden is also considering open support for measures to soften the blow of global oil price increases, including a possible pause in the federal gas tax of 18 cents a gallon. Some sources say a gas rebate card program is also under consideration. These measures would require action from Congress, but presidential support could force Congress to move forward.

Market News Stays (Mostly) Negative

MarketWatch reports that the US stock markets are set to record their worst six-month period since the start of the Great Depression in 1932, with the S&P 500 having already shed 22.3% this year. CNN Business adds to the chorus of doom, stating that the sell-off may be just beginning, and could accelerate and deepen if the economy sinks into a full recession (2 consecutive quarters of negative growth).

On the opposite side of the ledger, Business Insider quotes Bank of America in claiming that the current retreat is “creating opportunities for long-term investors”. The bank states that once the bear has had its way the S&P 500 (currently at 3,764.79) will be primed for a surge to 8,900 by 2028. The projection is based on an analysis of 20 previous bear markets going back 140 years. They recommend “gorging on stocks” if the index reaches 3000. On a historical basis that is probably sound advice, but it’s only possible for those who have capital!

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