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The Biden Administration Is Right to Curb Predatory Bank Fees
When banks hit people with an overdraft fee, they end up further in the hole—to the benefit of the bank.
Apr 07, 2024
Poverty is expensive in this country.
Few things illustrate that truism like overdraft charges and late fees, which are often little more than outrageous penalties for not having enough money. But there are plans in the works at the Consumer Financial Protection Bureau (CFPB) to rein in these abusive practices.
Overdraft fees occur when a customer attempts to withdraw more money from their account than is available, but the banking institution covers the transaction—for a fee. The CFPB is proposing rules to close loopholes in rules on overdraft fees by establishing a benchmark that banks cannot exceed.
Consumers will appreciate strong action on these issues. And consumers vote!
Over a quarter of Americans live in a household that was charged an overdraft fee in the past year, but especially harmed are those who have the least to begin with. These overdraft fees are structured to prey on consumers already in a financially precarious position. The impact skews toward low-income households and people of color. Young people are also more likely to be affected.
When banks hit people with an overdraft fee, they end up further in the hole—to the benefit of the bank. “Overdraft fees are not so much a useful service as they are a lucrative profit center underwritten by the most economically vulnerable consumers,” said Kimberly Fountain, consumer field manager at Americans for Financial Reform.
Overdraft fees affect credit scores and can even lead to account closures, leaving people without access to banking services altogether. More than any other group, Black Americans tend to be underbanked or unbanked.
As with overdraft fees, banks foist the burden of late fees on people living paycheck to paycheck, low to moderate income consumers, and people of color.
More than 80% of adults have at least one credit card—and these cards are full of junk fees. Late fees alone cost consumers $14 billion a year—and low-income earners pay about twice as much in fees as higher-income earners.
These late fees are not based on any sort of need for the bank. The CFPB found that banks take a fee almost five times greater than the cost to the bank of a late payment.
These practices also reinforce the racial wealth gap. Data shows that banks have often charged those living in neighborhoods with populations of color a higher interest rate. And places with a higher Black or Hispanic population are charged on average more than $25 in late fees, while in places where the Black population is nearly zero, people pay less than $20.
In a new consumer protection action, the CFPB is limiting the amount companies can charge for a late fee to a more reasonable $8.
Fee reforms work. In 2009, Congress passed the Credit CARD Act, which required banks to give consumers enough time to pay their bills, eliminated retroactive rate increases, and curbed excessive marketing to young adults. Careful study of the CARD Act found that the market became more transparent and many fees went away. By 2013, the law was saving Americans $20.8 billion a year.
Consumers will appreciate strong action on these issues. And consumers vote! About 82% of U.S. adults support lowering the maximum late fee, 68% support the 15-day grace period, and 84% support requiring companies to remind consumers of late fees.
The CFPB should keep at it. Making ends meet in this country is hard enough without being charged for coming up short.
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We Must Reject Ego-Nomics to Prevent Human Extinction
To secure the well-being of all of Earth’s people and the many other members of Earth’s household, we will need a new economics, an “eco-nomics” that guides us on a path to a life-centric civilization.
Apr 03, 2024
Our modern lives are largely determined by economic policies shaped by prevailing economic theory. Yet current economic theory serves us well only if our societal purpose is to exploit people and Earth to make money for the already rich. This economics is better named ego-nomics, as its focus on personal financial return is more ego (from the Latin “I”) than eco (from the Greek “oikos” meaning household). In our current interdependent world, our household is Earth and all its living beings.
Humans confront an unprecedented challenge. Science tells us that by the end of this decade we must reverse the damage we are doing to the Earth or reach a point beyond which repair becomes impossible. To secure the well-being of all of Earth’s people and the many other members of Earth’s household, we will need a new economics, an “eco-nomics” that guides us on a path to a life-centric civilization, an Ecological Civilization dedicated to caring for one another and all members of the Earth household.
The challenges of the transformation we must now navigate are daunting. Yet human self-extinction—the likely consequence of failure—makes it essential that we join in common cause with serious commitment.
The challenge of our time is to fulfill our true and largely unrealized human potential as we learn to live in beloved communities of mutual caring and service to one another and the natural and human commons.
As we examine the environmental and social failures of modern society, we confront a host of self-evident truths that conventional ego-nomics ignores. Earth is our common home and the source of our existence and well-being. Money has no meaning or utility beyond the human mind. Indeed, most modern money is only invisible electronic traces stored on computer memory chips.
Not only has ego-nomics ignored these truths. It has also led us to create a world in which the vast majority of the world’s people have been reduced to servitude to those who control those electronic traces.
The resulting growth in inequality is beyond obscene. In January 2023, the World Economic Forum reported that the financial assets of the world’s super-rich were growing by $2.7 billion a day. The average billionaire was gaining roughly $1.7 million in new financial assets for every $1 in pay received by a person in the bottom 90%.
The ultimate human conceit is the belief that an all-powerful God created the vast cosmos and the finite living Earth for humans to exploit in whatever way might appeal to them. In its ability to sustain life, Earth is distinctive among the planets we have so far observed. And we humans are distinctive among Earth’s beings in our ability to choose and create our future together. This gives us special privileges—and special responsibilities—consistent with our distinctive nature.
Misled by the flawed promises of the ego-nomics promoted by the self-serving who benefit from it, we have allowed money to replace mutual care in mediating our relationships with other people and the living Earth. Indeed, we have come to idolize a small minority of predatory humans who suffer from a grandiose sense of superiority and self-entitlement known as narcissistic personality disorder. Neglected and disrespected in their earliest years, these individuals engage in a relentless quest for excess in an effort to demonstrate their self-worth in the face of their own self-doubt. In the process, they dehumanize themselves and those around them.
The challenge of our time is to fulfill our true and largely unrealized human potential as we learn to live in beloved communities of mutual caring and service to one another and the natural and human commons. Key components of the new eco-nomics involve:
- Replacing GDP with valid indicators of beneficial economic performance.
- Confronting and dispelling the illusion that money is wealth and that growing money benefits us all.
- Embracing biology and ecology as the disciplines most foundational to an eco-nomics for an Ecological Civilization.
We face a series of daunting institutional challenges. We currently debate a choice between socialism (an economy ruled by politicians and public officials) and capitalism (an economy ruled by private financiers). Many of us are fearful of the potential melding of the two into fascism. What is rarely mentioned is the people power alternative rooted in democratic communities and community markets.
An Ecological Civilization depends on the latter. It requires that financial assets be equitably distributed to assure that responsibilities for making significant decisions are truly shared. Predatory monopolistic profit-maximizing corporations will be converted into worker or community cooperatives responsible for serving the needs of all their stakeholders.
Reliance on money as a substitute for caring relationships will be minimized. The private banking system that currently operates beyond accountability to national governments and interests will be replaced by a global system of community banks cooperatively owned and operated by the communities in which they do business.
We are not dealing with a broken system in need of repair. We are dealing with a failed system in need of replacement. We will achieve this transformation to an Ecological Civilization only through a people powered meta-movement in which the world’s people come together guided by a valid eco-nomics in a unifying commitment to creating a world that works for all of Earth life.
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New Rule Under Biden Would Save Americans $10 Billion in Credit Card Fees
"CFPB's new rule demonstrates that policymakers can—and must—take on predatory, deceptive behavior and act as a strong check on corporate power."
Mar 05, 2024
As part of the Biden's administration's efforts to eliminate so-called "junk fees," the Consumer Financial Protection Bureau has finalized a rule that would cap credit card late fees at $8.
The average credit card late fee is $32, so the savings for consumers could be huge. The CFPB estimates that, once it takes effect, the new rule will save Americans over $10 billion a year.
"For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers," Rohit Chopra, director of the Consumer Financial Protection Bureau, said Tuesday. "Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines."
For over a decade, credit card giants have exploited a loophole to harvest billions of dollars in junk fees from consumers. Today, the @CFPB is closing this loophole and reducing the typical credit card late fee from $32 to $8. https://t.co/yCD7RjZN2p
— Rohit Chopra (@chopracfpb) March 5, 2024
The corporate watchdog Acountable.US praised the move but also noted that it will likely "run into immediate legal and legislative attacks from big banks."
"Big banks have no need to nickel and dime everyday families with hidden, high-cost late fees based on the massive profits they brag about to wealthy investors," said Accountable.US' Liz Zelnick. "Bank industry lobbyists claim junk fees teach responsibility, but families who are price-gouged with late fees as high as $41 buried in the fine print only get a hard lesson in corporate greed."
There's already been some pushback, as the U.S. Chamber of Commerce says it plans to file a lawsuit to block the rule. The lobbying group called the rule "misguided and harmful."
Sen. Elizabeth Warren (D-Mass.), who proposed and established the CFPB, praised the move in a tweet and said it was the "government working for the people, not the big banks."
The CFPB, in its push to reduce or eliminate junk fees, also plans to heavily reduce how much banks can charge for debit card overdraft fees. The new rule for credit card late fees is expected to take effect in June.
"Junk fees, like the excessive late fees credit card companies charge, are yet another tactic corporations use to prey on customers and juice their profit margins even further," said Bilal Baydoun, director of policy and research at the Groundwork Collaborative. "CFPB's new rule demonstrates that policymakers can—and must—take on predatory, deceptive behavior and act as a strong check on corporate power."
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