Wells Fargo Excessive Overdraft Fees – In 2019, banks and credit unions collected an estimated $15.5 billion from customers in overdraft and insufficient funds fees. This fee is imposed when a financial institution determines that a customer’s checking account does not have funds to cover a charge. They are often valued for reasons people don’t expect or understand, deduct from required income including public benefits, and cause huge losses to paycheck to paycheck families. Overdraft fees could eventually drive people out of banking entirely.
While many banks have begun reducing these fees — and overall fee totals have begun to decline — the overdraft practice still penalizes and creates financial barriers for customers with limited resources. The CFPB study found that people who pay more than 10 overdraft charges per year end up paying nearly three-quarters of them, and that, on average, those who overdraw regularly pay $380 in overdraft fees in a year. . Likewise, interviews with consumers by the CFPB revealed concerns that overdraft fees would make recovering and paying future charges more difficult. A typical overdraft fee of $35 “is a lot of money for someone who doesn’t have an overdraft fee,” in the words of one respondent.
Wells Fargo Excessive Overdraft Fees
In turn, these costs can take a real financial toll on families and turn setbacks into crises. For low-wage workers, an overdraft fee over the course of the year can cost a full week or more of the family’s wages. For many households, bank fees may reduce money that could be better spent elsewhere. In fact, many balance sheets that are constantly overdrawn actually have little room for unexpected expenses to begin with. The 90% of people who are regularly overdrafted (defined as consumers who have overdraft charges more than 10 times in a year and have insufficient overdraft charges) typically don’t average more than a few hundred dollars in overdrafts at the end of any given year. Going below zero could result in hundreds of dollars in cascading fees, which the bank will charge on the customer’s next deposit. As one respondent pointed out, “If you overdraft, the risk is that you end up taking your entire deposit due to overdraft fees.”
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Finally, those dealing with recurring overdraft fees face difficult and expensive upsides. Across the CFPB, our offices for service workers, seniors, students, young consumers, and low-income consumers regularly hear from stakeholders about how these fees not only make it harder for people to collect, but impact their perceptions of the banking system Public perception of whether it works is fair, transparent and competitive. Here are some of the main topics we hear from those who contact us.
Some get charged when they have a lot of pending transactions and low balances. In fact, many overdrafts occur shortly before someone receives a paycheck or benefit payment — when the account balance may be low. Bank processing practices and fee assessments can greatly affect the amount of overdraft fees charged by account holders. The experience for many consumers resembles the following:
On XX/XX/2021 my checking account was overdrawn and I got change, I transferred money to cover that amount and added XXXX cents to my account by XXXX, a rep told me there was an outage. On XX/XX/2021, I noticed that I was charged an overdraft fee and that my online banking transactions were in a different sequence than the night before, resulting in a negative balance on my account. I called the [financial institution] twice to resolve it and they said the overdraft fee is in effect and cannot be reversed. Talked to manager XXXX ID # XXXX and she said she was unable to reverse the overdraft charge based on the computer system not allowing her.
It’s hard to navigate the uncertainty of when payments will be processed and when deposits will be available.
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In some cases, multiple fees add up very quickly and significantly exceed the base transaction amount. Last September, a customer noticed he had been charged $400 in overdraft fees in just two months:[Company] has charged approximately $400.00 in overdraft fees since [July] 2021, and although I asked to have some of that reversed, I was told they cannot provide any “courtesy” refunds at this time. … [This] is my primary banking relationship where I deposit my salary and pay my bills. However, it’s becoming increasingly difficult to maintain because the fees are so high, often exceeding the cost of paid programs. And they are very frequent, several times a week or even a day. It’s hard to get by when deposits go straight to paying ridiculously high fees. I understand that banks need to be profitable, but this is ridiculous.
This places overdraft charges among the types of undesired charges that far exceed the cost of the organization to provide the associated product or service, and generally appear to be immune to competitive market forces.
Making a good-faith effort to manage their accounts and maintain a positive balance is often not enough, especially for people living paycheck to paycheck. In some cases, in addition to imposing an unmanageable financial burden, overdraft fees can drive people out of the banking system entirely. Some people, frustrated with their bad banking experience, close accounts themselves and ditch banks and credit unions altogether. The FDIC estimates that about 3.5 million households in the U.S. once had a bank account but no longer have it — 68 percent of whom said they had no interest in going back. For some, overdraft fees are an obvious motivator. In the words of one respondent, “I’m tired of losing checks before I can spend them.” By contrast, living without a checking or savings account makes everyday transactions riskier and more difficult.
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For others, unpaid overdrafts can lead to financial institutions closing customer accounts and reporting them to specialized credit reporting agencies (CRAs) that offer checking bank accounts. A negative report to one of these CRAs will often make it difficult to open an account with another bank in the future.
All Americans deserve a safe, affordable place to store and manage their money without worrying about depleting their funds with overdrafts and other unnecessary fees. Over the next several months, the CFPB will continue to explore our toolkit to address these and other financial practices that penalize customers and erode trust.
If you experience overdrafts, fees, or other banking problems, you can file a complaint with the CFPB.
For more information on CFPB’s efforts to address unsolicited fees and comment by April 11, visit the Federal Register. A federal judge again ordered Wells Fargo to pay $203 million to settle a class-action lawsuit alleging it charged checking account customers exorbitant overdraft fees and reinstate a ruling that was reversed last year.
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U.S. District Judge William Alsop on Tuesday reinstated a ruling he first delivered in August 2010, saying the fourth-largest U.S. bank violated California laws protecting consumers from fraudulent misrepresentations .
“Wells Fargo has been taking advantage of its most vulnerable customers, and that holds the bank accountable,” said Richard McCune, a partner at McCuneWright in Redlands, Calif., who represents about 1 million current and former Wells Fargo customers in the state. an interview. . “We think it’s the right decision.”
“We do not believe the ruling is consistent with the facts or the law in this case,” she said.
The suit differs from a nationwide lawsuit still pending in Miami federal court against about 20 banks, including Wells Fargo, alleging excessive overdraft fees.
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Consumers are typically charged around $25 or $35 when they check their checking accounts when they make purchases with their debit cards.
Since 2001, Wells Fargo has been accused of maximizing overdraft fees by processing such purchases in descending order rather than in chronological order. It has since changed its account posting practices, as have many of its competitors.
In December, the U.S. Court of Appeals for the Ninth Circuit overturned the original $203 million ruling, saying federal law takes precedence over California law, and Alsup relied on that part of the injunction to impose an injunction stopping the improper fee practices.
But the Ninth Circuit said the federal law does not supersede California consumer law on fraudulent or misleading statements, and directed Alsup to review the case again.
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In re-awarding the award, Alsup dismissed what he said was an effort by Wells Fargo to split its “reordering plan” into multiple components to reduce its overall liability.
The award sanctioned Wells Fargo for “certainly engaging in a practice that would mislead the class by engaging in a practice likely to mislead the class into believing that processing would proceed in chronological order.”
“Because Wells Fargo misrepresented rollover order and overdraft fees to its customers, the appropriate form of compensation is to reinstate the unexpected charges to Wells Fargo customers,” Alsop added.
Judge also permanently bans Wells Fargo from misleading customers about publications
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