Are banks profiting off the poor?
CINCINNATI (WKRC) - When your bank account goes in the red, you pay a lot of green in the form of fees.
Studies reveal bank fees are falling on those who can least afford them.
Local 12's Duane Pohlman continues focusing on Cincinnati's childhood poverty crisis by investigating how these fees are creating billions in revenue for the banks, creating what some say is a system that banks on the backs of the poor:
Every time you use your debit card, write a check or withdraw funds, the balance in your bank account goes down -- sometimes too far down.
“John” (not his real name) has a good job but not enough income to make it through most months. He says he is part of the working poor.
“I make it from paycheck to paycheck,” John said.
Every time John overdrafts his bank account, he faces a $37 fee.
“Yeah, it doesn't take much for that to add up to quite a few dollars,” he said.
With 15 overdrafts, John pays $555 dollars a year in fees.
Duane Pohlman: Could that be the difference between making it and not making it for you financially?
John: There are times. Yes.
He's far from alone.
According to the Center for Responsible Lending, in 2015, consumers in the United States paid $17 billion in bank overdraft and non-sufficient funds fees. That's $53 dollars for every American. And the fees just keep growing.
Chase, US Bank, PNC, Fifth Third, Key and Huntington dominate Ohio’s banking landscape.
In 2017, according FDIC reports that we studied, these six banks combined made more than $8.6 billion from fees charged across the country. More than $2.9 billion of those fees came from overdraft charges.
“Banks are a business, and this is just one of the sources of revenue that they're receiving,” said Mike Adelman, the president and CEO of the Ohio Bankers League, which represents all banks in the state.
Adelman defends the fees as a service.
“I think the average $35 fee for an overdraft is certainly much more beneficial than bouncing a check so my landlord doesn't receive my rent payment for the month,” said Adelman.
Duane Pohlman: So it's a service provided so you don't face things like eviction?
Adelman: Correct. Sure.
Ed Mierzwinski with the Public Interest Research Group, or PIRG, which has studied bank fees for three decades, has a different take.
“It's not only brilliant, it's devious because consumers think they're being offered protection; consumers think that they're being offered convenience, but again, the cost of providing the service is about a $1.50; they're charging you $35,” said Mierzwinski.
In this PIRG report, "Big Banks, Big Overdraft Fees," Mierzwinski says overdraft and other fees are fueling the bottom lines for big banks.
“They keep finding new ways to charge consumers fees. They invent new fees, they raise existing fees and they charge more fees to people,” he said.
And, according to government and banking studies, most of the bank fees that are fueling billions in revenues are falling on the backs of poor.
“Absolutely. I don't pay bank fees; you probably don't pay bank fees. People who pay bank fees have less money in the bank,” Mierzwinski said.
The Consumer Financial Protection Bureau found 18 percent of bank account holders pay 91 percent of all overdraft fees. Most of them -- nearly seven in 10 -- make less than $50,000 a year.
According to a survey commissioned in part by Bankrate.com, Americans with a bank account who had an annual household income under $30,000 paid $31 dollars each month in bank fees.
Duane Pohlman: Are we banking on the backs of the poor?
Mierzwinski: Absolutely we're banking on the backs of the poor.
The Ohio Bankers League disagrees.
“I do not agree with that at all. The fact of the matter is banks are a business. I think a lot of people forget that, and just like we pay a fee to the furniture company to deliver a new sofa or we pay a convenience fee on top of the cost of purchasing sporting or concert tickets, there's some fees attached to some of our banking services,” said Adelman.
But, outside of the banks, the question “Are we banking on the backs of the poor?” drew similar answers, from the Childhood Poverty Collaborative to a U.S. senator.
“It's legal, but it shouldn't be,” said Sen. Sherrod Brown.
Brown is the ranking minority member of the Senate banking committee, and he hopes he will soon be the chairman to make changes.
“If the Democrats are in the majority, I'll be the chairman of the banking committee, and we're going to have a very different look at the way banks are able to do business in this country in terms of the fees they charge,” Brown said.
For John and many others who live on little income, any relief from bank fees could make the difference between making it through the month or not.
“I can understand having fees, but they need to be reasonable, and they have gone way past reasonable; they're just out of control,” John said. "And they continue."
PIRG has been pushing for banks to offer lower-fee bank accounts for the poor, but the Ohio Bankers League says that's not practical because no one can say where you would draw the line.