How Bank Overdraft Fees Punish the Poor
Updated on 03 May 2023
Introduction
Last year, CNN Money
reported that the big three banks in the United States – JPMorgan Chase, Bank of America and Wells Fargo – had made $1.1 billion on overdraft fees in
the first three months of that year alone. Obviously, overdraft fees are a big money-maker for the banks, but who is most likely to pay these over draft fees?
We can arrive at an answer to this question by considering the factors that prevent overdraft fees from being charged:
Factors that Prevent Overdraft Fees
- Bank customer isn’t overdrawn — That’s right. As long as you keep a positive sum of cash in your checking account, you won’t be overdrawn.
- Bank customer has overdraft protection — Banks can link a checking account to a savings account or credit card. If the balance of the
checking account dips below a certain amount, that can trigger a transfer from savings or a cash advance from a credit card.
So, if you have plenty of cash on hand, or have secure enough credit to receive a cash advance on a credit card, you need not fear overdraft fees.
Overdraft Fees and the Poor
In other
words, you’re safe as long as you’re not poor. If you’re poor, you can expect a $35 overdraft fee on occasion. You can also expect these bank fees:
- Monthly charge for maintaining your account — Get ready to pay $12 a month or more, because you don’t keep a high enough balance to have this fee waived.
- Late fees on credit card payments — If your next paycheck comes after your next credit card payment is due, you could get charged $35
for a late payment, and have your interest rates raised as a result.
The High Cost of Banking for the Poor
Considering all these factors, banking is disproportionately more expensive for the poor or for consumers struggling with debt. If you’re burdened with
excessive debt, bank overdraft and late fees can eat up any progress you’re making in paying down what you owe.
Solutions for Consumers Struggling with Debt
When your progress paying down debt stalls, it’s time to call DebtStoppers.Our firm has solutions for consumers laboring under a mountain of debt. Our bankruptcy attorneys can help you get a fresh start.
Call DebtStoppers at 312-913-0630 or contact our office online to schedule a free appointment.
Banking Alternatives for Low-Income Consumers
For low-income consumers and those struggling with debt, traditional banking services may not be the most cost-effective option. Thankfully, there are alternatives that can help minimize the financial burden of banking fees.
Credit Unions
Credit unions are not-for-profit financial institutions that often provide lower fees and better interest rates compared to traditional banks. Since they are member-owned, their primary goal is to serve their members rather than maximize profits. Many credit unions offer free or low-cost checking and savings accounts, as well as more affordable overdraft protection options.
Online Banks
Online banks, which operate solely via the internet, typically have lower overhead costs than traditional brick-and-mortar banks. As a result, they can offer free or low-fee checking and savings accounts with fewer restrictions. Some online banks even offer features like automatic savings transfers and budgeting tools to help customers manage their finances more effectively.
Prepaid Debit Cards
Prepaid debit cards can be an alternative for those who have difficulty opening a traditional bank account due to poor credit or a history of overdrafts. Users can load funds onto the card and use it for purchases, bill payments, and ATM withdrawals without the risk of overdraft fees. However, it's essential to research and compare prepaid debit card options, as some may have high fees or hidden charges.
Financial Counseling and Debt Management
For individuals struggling with debt, seeking professional financial counseling can be a valuable step towards regaining control of their finances. A certified credit counselor can help create a personalized budget, provide guidance on debt management, and even negotiate with creditors on your behalf.
Seek Help from a Bankruptcy Lawyer
If you're facing overwhelming debt and the burden of bank fees is making it impossible to regain financial stability, consider consulting a bankruptcy lawyer. An experienced bankruptcy attorney can help you explore your options, such as filing for bankruptcy, to find a solution that works best for your unique financial situation. Don't let bank fees and mounting debt control your life; seek help from a bankruptcy lawyer to get the fresh start you deserve.
