Overdraft Fees Waived During COVID-19 Pandemic

Washington, DCSome banks are pitching in during the COVID-19 pandemic by forgoing overdraft charges and other actions that can support consumers. Banks aren’t known for their philanthropy:  In return financial institutions can earn credit toward their Community Reinvestment Act requirements (CRA). 

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency on March 19 stated that “favorable consideration” will be given to banks under the CRA that assist lower-income borrowers, small businesses and small farms experiencing hardships due to the coronavirus.

Waiving overdraft fees doesn’t seem like a hardship for banks. Charging $35 when a purchase exceeds the funds in a consumer's checking account adds up to more than $11 billion a year for large banks, according to Federal Deposit Insurance Corp. data cited by the Center for Responsible Lending. 

Now is the time to stop slapping vulnerable people with overdraft fees – people who have become financially insecure because of the pandemic. Many people are strapped; they are barely living paycheck to paycheck and it doesn’t seem much but $35 can put these individuals in a financial hole they may never climb out of.
 

The Stop Overdraft Profiteering Act

"At the height of this pandemic, hardworking Americans should be protecting their health, not worrying about big banks slapping them with fees for small overdraft amounts," said Ohio Senator Sherrod Brown who, along with New Jersey Sen. Cory Booker, announced on March 23 an effort to suspend overdraft fees for the duration of the COVID-19 emergency. In May 2019, the senators introduced “The Stop Overdraft Profiteering Act”,  which is “a  bill to amend the Truth in Lending Act to limit overdraft fees and establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes”. 

It is also a measure that would ban overdraft fees during a presidentially declared emergency or major disaster and for six months afterward. Banks, credit unions and other financial institutions would also be prohibited from telling credit reporting agencies about overdraft events during emergencies. The senators said they want their legislation included in the massive stimulus bill being negotiated in the Senate, according to Law360. But those opposed to this measure argue that it would discourage overdraft protection and push consumers toward high-interest payday lenders.

Ally Bank has already stepped up, saying it would skip overdraft charges through at least July 16.  On its website is this statement: 
“This is a challenging time, and while news is constantly changing, one thing will remain the same: you have an ally in us. In addition to offering relief measures, we’re making sure you can connect to the financial services you need and empowering our teammates to support you any way they can.”

“If you bank with us, we’re waiving fees for overdrafts, excessive transactions, and expediting checks and debit cards at no charge until 7/18/20”

Other banks have said they will consider waiving overdraft and other fees on a case-by-case basis when consumers call to ask for help.
 

Community Reinvestment Act

The Community Reinvestment Act (CRA), often referred to as one of the last major civil rights bills of the 1960s and 1970s, was intended to combat redlining and expand credit access by encouraging banks to provide loans and other services to less affluent parts of their communities. The purpose of the CRA is also to meet the credit needs of local low- and moderate-income communities

Banks earn CRA consideration for loans and other support for community development in struggling areas, according to the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency. Examples include providing financing for health care services, investments in food supply access and assistance that helps small businesses operate.

“Favorable consideration will be given to community development activities located in a broader statewide or regional area that includes a bank’s CRA assessment area and that help to stabilize communities affected by the COVID-19, provided that such institutions are responsive to the community development needs and opportunities that exist in their own assessment area(s),” the agencies said.