Chase Bank may have set sail into a hurricane with its plans to begin charging about 80 million customers for the overdrafts and other checking services that they now enjoy for free.
“The changes will be broad, sweeping, and significant,” Chase CEO Marianne Lake said, noting that those most affected will be individuals who can least afford the additional expenses.
Chase, the nation's largest consumer bank, is apparently trying to get back at the Consumer Financial Protection Bureau (CFPB), which wants to cut the overdraft fees that banks charge when customers overdraw their accounts.
The overdraft fees bring in billions of dollars a year, which consumer advocates say more than covers the banks' costs to cover overdrafts for a few days.
Chase may still get by with it but it may regret doing so in an election year, making itself a target for elected officials trying to win voter approval for their consumer protection efforts.
Senators Elizabeth Warren (D-MA) and Chris Van Hollen (D-MD) lost no time responding to Chase's plans. In a letter, the two demanded the bank scrap its plans
“JPMorgan Chase’s potential imposition of new costs on its customers in response to legal and long-overdue efforts to limit abusive fees—at a time when the then bank is making record profits and funneling those profits straight into the pockets of its executives —is outrageous,” the senators wrote.
Trying to close a loophole
The controversy traces back to January, when the CFPB unveiled a plan to close a loophole that exempts overdraft charges from the Truth in Lending Act.
"Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail," said CFPB Director Rohit Chopra in January. "Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine."
The CFPB's proposed rule would apply to the 175 largest banks in the country. These institutions typically charge $35 for an overdraft loan, even though the majority of consumers’ debit card overdrafts are for less than $26, and are repaid within three days.
Approximately 23 million households pay overdraft fees in any given year. The CFPB estimates that this rule may save consumers $3.5 billion or more in fees per year. The potential savings would translate to $150 for households that pay overdraft fees.
2023 was JPMorgan Chase's most profitable year in history, raking in $49.6 billion, while funneling $30 billion to its wealthy investors through a stock buyback program.
While Chase may succeed with its plan, consumers should know that there are thousands of smaller banks and credit unions that offer free checking and do not charge excessive overdraft fees. They generally offer nearly all of the services of larger banks at less cost.
