In response to the new overdraft rule released today by the Consumer Financial Protection Bureau (CFPB), which aims to restore balance between American families and big financial institutions and prevent consumers from losing money due to overdraft fees, Rise Economy Chief Executive Officer Paulina Gonzalez-Brito released the following statement:
“Overdraft fees disproportionately impact vulnerable consumers, especially Black, Indigenous and People of Color (BIPOC) consumers. These consumers are far more likely to become trapped in a never-ending cycle of financial hardship due to excessive and unnecessary fees levied by banks. The CFPB’s proposed rule would effectively put reasonable limits on banks that seek to profit from the financial misfortunes of these vulnerable and historically impacted communities.
“It’s unfortunate, however, that many of these consumers have already been pushed away from mainstream banks due to high fees and extractive costs associated with banking. As a result, some have turned to harmful and predatory banking alternatives like check cashers. Thankfully, California is considering an alternative in CalAccount, which is the first public banking option in the nation that offers a zero-fee, zero-penalty debit account and debit card for all Californians. By having the new CFPB overdraft rule in place as a safeguard for consumers and by having CalAccount as an option, we can create a financial ecosystem that is safer for vulnerable consumers.
“The CFPB is known for prioritizing the well-being of consumers and safeguarding their interests. We see this in the actions CFPB has taken to protect consumers against abusive overdraft fees. Yet we hope that these protections can be extended to consumers at financial institutions with less than $10 billion in assets. This is because 15 of the top 20 state-chartered financial institutions that charge the highest fees in California are credit unions, with a total of nearly $171 million in junk fee income in 2022 alone, according to our research. The Top 20 state-chartered credit unions hold $78.8 billion in assets and $98.8 billion in deposits. Some with low-income designation, like Golden 1 and Redwood Credit Union, have collected $44.5 million in junk fees from low-income members. Expanding coverage to smaller institutions will help ensure that consumers are exposed to as few fees as possible. It’s time to put an end to financial institutions profiting off the backs of consumers.”
Banks and credit unions collect billions in overdraft fees from low-income households each year. Rise Economy has worked for the last several decades to put an end to this harmful practice.
The CFPB is proposing to treat overdraft fees charged by the largest financial institutions as loans subject to Truth in Lending Act protections and disclosures, and to ensure that fees charged as a convenience to customers, not as big bank profit centers, are reasonable and reflect the actual costs to banks. Rise Economy has long called for such reforms to bank and credit union overdraft products, and we applaud the CFPB’s efforts.