Banks are taking
advantage of Americans desperately trying to juggle their finances, and that
squeezing is really paying off — at the top.
Almost two-thirds of Americans today — 63 percent — don’t have enough savings to
cover an unexpected $500 expense. Anything from an emergency brake job to a
refrigerator on the fritz could zero out their bank accounts.
Most American households, in other words, are living on the
financial edge. And that suits America’s biggest bank CEOs just fine. They love
to see Americans desperately juggling credit cards and checking accounts to
keep bills paid.
With all that juggling, our banksters know, something will
inevitably get dropped. A checking account will be slightly overdrawn. A debit
card transaction will overstep a limit. And that’s when the banks start to
really clean up — through overdraft fees.
“Over the years,” Consumer Financial Protection Bureau director
Richard Cordray has testified, “overdraft programs
have become a significant source of industry revenues.”
How significant? Over the first three months of this year, Bank
of America collected $393 million in overdraft fees, up from $371 million in
the first quarter of 2015. Wells Fargo pulled in even more, with $411
million — a 16 percent increase from the same period last year.
Banks play all sorts of games to maximize these mega millions in overdraft income. They particularly enjoy “reordering” the purchases consumers make. Banks that “reorder” process a day’s biggest charge or check first, even if smaller charges or checks came earlier in the day.
What difference does this reordering make? A great deal more
than you might think.
Say you start the day with $80 in your account and you charge
three $25 items — and then find yourself having to shell out another $100 later
in the day. If the bank processes these charges in chronological order, you’ll
pay only one overdraft fee when the $100 charge pushes you over your limit.
But if the bank processes the $100 charge first, ahead of the
three smaller purchases, you’ll end up paying four overdraft fees for the exact
same days’ worth of charges.
Who’s benefiting from this sort of chicanery? Not bank branch
managers. They’re only averaging $54,820 a year,
calculates PayScale. And certainly not bank tellers. The typical American
teller last year earned just $12.70
an hour, about $26,410 a year, says the U.S. Bureau of Labor Statistics.
Bank CEOs, on the other hand, are living spectacularly high on
the hog. Last year, the 10 most lavishly compensated of these top execs
averaged over $15.5 million each, with the CEO of overdraft fee king Wells
Fargo coming in at over $19.3 million.
Overdraft fees make these over-the-top CEO rewards possible. But
let’s keep in mind an even more important point: Sky-high rewards for CEOs make
overdraft chicanery inevitable.
They give banking execs a powerful incentive to
maximize overdraft income from reordering and all sorts of other tricks of the
banking industry trade.
The federal government’s Consumer Financial Protection Bureau is
trying to clamp down on these tricks and has already made some progress. But as
overdraft revenues continue to rise, bank execs simply have no incentive to
turn off the spigot.
If we want to see real reform in the financial industry, we
can’t just put some limits on how much banks can grab from overdrafts. Maybe we
need to start talking about limiting how much pay can go to the executives who
run our biggest banks.
Sam
Pizzigati, an Institute for Policy Studies associate fellow, co-edits
Inequality.org. His latest book is The Rich Don’t
Always Win: The Forgotten Triumph over Plutocracy that Created the American
Middle Class, 1900-1970. Follow
him on Twitter @Too_Much_Online. Distributed by OtherWords.org.
