Small loan deals mark ‘tipping point’ on overdraft: Pew


diving letter:

  • January 2022 was a “watershed moment” for overdraft reform and access to credit in the US an article Published this week by the Pew Research Center.
  • Four of the seven largest retail banks in the country – Bank of America, Wells Fargo, US Bank and Truist (along with Alabama-based Regions Bank) – revealed changes to their overdraft policy earlier this month.
  • Each of these banks offers — or recently announced plans to offer — affordable small loans to consumers that Pew estimates could also collectively save borrowers more than $2 billion a year.

Dive insight:

“In the past, overdraft programs have been marketed to help people living paycheck to paycheck to prevent important transactions from being declined, but this expensive option doesn’t effectively meet the needs of most consumers who need time to pay into installments.” repay,” analysts at Pew wrote Tuesday.

Instead of overdrafting an account and paying an overdraft fee, consumers who want to borrow a small amount of money might be better served with a small loan offering, they said.

Three of the banks Pew cited this week — Wells Fargo, Truist and Regions — recently announced new small loan offerings to fill a gap left by overdraft reform.

Wells will offer an installment loan of up to $500, Regions will introduce a $500 line of credit, and Truist will offer a $750 line of credit. Bank of America and US Bank already offered such small loans.

“Concerns about providing liquidity to consumers should be addressed with actual small loans, rather than overdraft policies that result in penalties,” the Pew analysts wrote. “Developments in January prove that this scenario is becoming the industry norm.”

However, some argue that bank overdrafts are a crucial service that benefits consumers. “ONE The majority of consumers using the product do so consciously and appreciate the flexibility it offers as one of the few short-term liquidity options remaining in the well-regulated, well-supervised banking industry,” tThe Association of Consumer Banks (CBA) said in a Press Release ThursdayThe addition “More than two-thirds of consumers say they don’t want to lose access to the service.”

A number of banks have announced successively in recent months that they will eliminate insufficient fund (NSF) fees and some overdraft fees.

Allied Bank decided to eliminate overdraft fees in June 2021. Capital One followed suit in December, the country’s largest bank to drop the fees charges.

Bank of America on Jan. 11 said it would reduce overdraft fees from $35 to $10, as well as eliminate NSF and certain wire transfer fees.

Later that day, Wells Fargo also announced plans to eliminate NSF fees and wire transfer fees and introduce a 24-hour grace period before charging an overdraft fee.

The US bank has stopped charging certain NSF fees on January 3 and later that month announced plans to increase the amount an account can overdraw before a fee is charged from $5 to $50.

shop steward On Jan. 18, two new personal checking accounts with no overdraft fees were unveiled, which the bank plans to launch this summer. The bank also said it will eliminate fees for returned items, negative account balances and overdraft protection transfers in the near future.

The banks’ shift away from overdraft fees continued into February. M&T Bank announced this week that that is the case to reduce Overdraft fees range from $36 to $15.

TD on February 1st said that starting this year, customers can overdraw their accounts by up to $50 without charging a fee. The bank is also introducing low balance warnings and a 24-hour grace period, and will eliminate a fee charged when customers with overdraft protection withdraw money from their savings accounts.


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