July 13, 2016
Page 7
O PINION
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Earning Mega Millions in Overdraft Income
A squeeze that
pays off at the
top
s am P izzigati
Almost
two-
thirds of Ameri-
cans today — 63
percent — don’t
have enough sav-
ings to cover an
unexpected $500
expense. Anything from an emer-
gency 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 Amer-
icans desperately juggling credit
cards and checking accounts to
keep bills paid.
With all that juggling, our
banksters know, something will
inevitably get dropped. A check-
ing account will be slightly over-
drawn. A debit card transaction
will overstep a limit. And that’s
by
when the banks start to really
clean up — through overdraft
fees.
“Over the years,” Consumer
Financial Protection Bureau di-
rector 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 in-
crease from the same period last
year.
Banks play all sorts of games
to maximize these mega millions
in overdraft income. They partic-
ularly enjoy “reordering” the pur-
chases 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 reor-
dering 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 an-
other $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 day’s worth of
charges.
Who’s benefiting from this sort
of chicanery? Not bank branch
managers. They’re only aver-
aging $54,820 a year, calculates
PayScale. And certainly not bank
tellers. The typical American tell-
er last year earned just $12.70 an
hour, about $26,410 a year, says
the U.S. Bureau of Labor Statis-
tics.
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 pos-
sible. 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 pow-
erful incentive to maximize over-
draft 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 over-
draft revenues continue to rise,
bank execs simply have no incen-
tive 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. Distrib-
uted by OtherWords.org.
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