- Key insight: Democrats and Republicans alike took aim at overdraft fees at a Senate Banking hearing, with a Republican lawmaker warning banks that continuing the status quo could prompt legislative action.
- Supporting data: Sen. Bernie Moreno, R-Ohio, accused banks of sequencing transactions to maximize overdraft fees, joining Democrats who argued overdraft has become a major profit center.
- Forward look: The hearing suggested affordability concerns could create new bipartisan pressure on banks over consumer fee practices.
Lawmakers from both parties spent part of a Senate Banking Committee hearing on affordability criticizing banks' reliance on overdraft fees and certain credit card interest practices, demonstrating that fees associated with banking remain a politically potent concern.
Democrats and Republicans framed their criticism as a fairness issue for working Americans during Tuesday's hearing, which was centered on affordability. Sen. Bernie Moreno, R-Ohio, criticized banks for how they process deposits and withdrawals, specifically arguing that many institutions strategically order transactions to maximize overdraft fees. Speaking to witness Lindsey Johnson, CEO of the Consumer Bankers Association, he said that failure to address these practices invites Congress to step in and force the industry to change.
"Why do you post deposits after withdrawals at most of your financial institutions? Most banks, for example, in Ohio that receive deposits, those deposits don't credit the person's account until after withdrawals, and a lot of that results in overdraft fees," Moreno said. "That's something that you guys can either do voluntarily, or you're going to make us pass a law to do that, because it's crushing working in Americans, and it's fundamentally unfair.
When Johnson attempted to interject, attempting to highlight the trade group's belief in the importance of overdraft protection, Moreno continued, cutting her off.
"Just don't do bad things," he continued. "If you want to have good cooperation from people who care about working Americans — which is [both] Republicans and Democrats — don't do things like that. This is my advice, you can take it or not take it."
Consumer advocates like Julie Margetta Morgan, president of The Century Foundation, argued overdraft has evolved from an occasional courtesy into a significant source of bank revenue. She also criticized the administration's
Senator Chris Van Hollen, D-Md., focused on the fair lending risks that emerge from the asymmetric information customers have compared with the terms of compounding fees on overdraft services.
"You can go and get a cup of coffee and not realize that your three buck cup of coffee ended up getting you a $35 overdraft fee," Van Hollen said. "Banks love these; the rates can be as high as 16% effective annual interest. … There was one middle bank executive whose bank raked so much in overdraft fees that they
Establishment conservatives like Tom Tillis, R-N.C., disagreed with critiques of banks' practices, arguing that customers often get a grace period before fees begin to pile up. Tillis said Congress would do better to prioritize financial literacy and better real-time account notifications instead, arguing customers ultimately have a responsibility to monitor their account balances.
"The last time I checked, a lot of the banks still give you one or two passes, but when it becomes a chronic problem, at what point are you expected to actually know how much is in your bank account before you write a check?'" said Tillis, who is not running for reelection. "It's nothing more than that — it's financial literacy."
Sen. Elizabeth Warren, D-Mass., contrasted banks' treatment of consumers with the flexibility they received during the COVID-19 pandemic, noting that the Federal Reserve allowed banks greater access to liquidity while many institutions declined requests to extend similar leniency to their own customers on overdraft fees during this period.
"During the COVID crisis, the financial institutions all were given free access to overdraft their accounts at the Fed. It saved them literally billions of dollars, because they could get free access to money when they didn't have money in their accounts," Warren said. "The government politely asked them to extend the same courtesy to their own customers, which they refused to do, and they raked in billions more in profits. So it worked for the big boys, it just didn't work for the little dog."
