Small loan deals mark ‘turning point’ in overdraft pivot: Pew


Diving Brief:

  • January 2022 was a “watershed moment” for overdraft reform and credit accessibility in the United States, according to an article published this week by the Pew Research Center.
  • Four of the nation’s seven largest retail banks — Bank of America, Wells Fargo, US Bank and Truist (with Alabama-based Regions Bank) — unveiled changes to their overdraft policies this month.
  • Each of these banks offers – or has recently announced plans to offer – small, affordable loans to consumers, which Pew says could also save borrowers more than $2 billion a year, collectively.

Overview of the dive:

“Historically, overdraft programs have been marketed as helping people who live paycheck to paycheck to prevent large transactions from being declined, but this high-cost option doesn’t effectively meet the needs of most people. consumers who need time to repay in installments,” the Pew analysts wrote. Tuesday.

Instead of overdrafting an account and incurring overdraft fees, consumers looking to borrow a small amount of money might be better served with a small loan offer, they said.

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

Wells will offer an installment loan of up to $500, Regions is launching 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 small, real credit, rather than overdraft policies that carry penalties,” the Pew analysts wrote. “January’s developments prove that this scenario is becoming an industry standard.”

Yet some argue that overdraft is a crucial service that benefits consumers. “A the majority of consumers who use the product do so knowingly and appreciate the flexibility it offers as one of the few remaining short-term liquidity options in the well-regulated and well-supervised banking industry,” ta Consumer Bankers Association (ABC) said in a press release on Thursday, adding that “more than two-thirds of consumers say they don’t want to lose access to the service.”

One after another, a succession of banks over the past few months have announced plans to waive the NSF fee and certain overdraft fees.

Allied bank decided to abolish overdraft fees in June 2021. Capital One followed suit in December, becoming the largest bank in the country to drop fees.

Bank of America on January 11, it announced that it would reduce overdraft fees from $35 to $10, as well as eliminate the NSF and certain transfer fees.

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

The American bank stopped charging some NSF fees on Jan. 3, and later that month announced plans to increase — from $5 to $50 — the amount an account can exceed before a fee is charged.

Truist January 18 unveiled two new personal checking accounts with no overdraft fees that the bank plans to launch this summer. The bank also said it will eliminate fees for returned item transfer, negative account balance and overdraft protection in the near future.

The abandonment of overdraft fees by banks continued in February. M&T Bank announced this week that it is reduce the overdraft fee he charges from $36 to $15.

TD on February 1 said it will allow customers to overdraft their accounts up to $50 without charging a fee, starting this year. The bank is also introducing low balance alerts and a 24-hour grace period, and will eliminate fees it charges when customers with overdraft protection transfer money from their savings account.

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