[Senate Hearing 117-624]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-624


     EXAMINING OVERDRAFT FEES AND THEIR EFFECTS ON WORKING FAMILIES

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
             FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

                                 OF THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

EXAMINING WAYS TO LOWER THE EVERYDAY COSTS FOR AMERICANS AND TO ENSURE 
        STABILITY IN THE FINANCIAL INSTITUTIONS THAT SERVE THEM
                               __________

                              MAY 4, 2022
                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                

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                Available at: https://www.govinfo.gov/
                
                             __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
55-743 PDF                 WASHINGTON : 2024   


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL G. WARNOCK, Georgia          KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                 ______

     Subcommittee on Financial Institutions and Consumer Protection

                   RAPHAEL G. WARNOCK, Georgia, Chair

         THOM TILLIS, North Carolina, Ranking Republican Member

ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             MIKE ROUNDS, South Dakota
ELIZABETH WARREN, Massachusetts      BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada       CYNTHIA LUMMIS, Wyoming
CHRIS VAN HOLLEN, Maryland           JERRY MORAN, Kansas
KYRSTEN SINEMA, Arizona              KEVIN CRAMER, North Dakota

                Max Virkus, Subcommittee Staff Director

           Ryan Adams, Republican Subcommittee Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         WEDNESDAY, MAY 4, 2022

                                                                   Page

Opening statement of Chair Warnock...............................     1

Opening statements, comments, or prepared statements of:
    Senator Tillis...............................................     3

                               WITNESSES

Aaron Klein, Senior Fellow in Economic Studies, Brookings 
  Institution....................................................     5
    Prepared statement...........................................    22
Jason Wilk, Founder and Chief Executive Officer, Dave............     6
    Prepared statement...........................................    32
    Responses to written questions of:
        Senator Warren...........................................    41
David Pommerehn, Senior Vice President and General Counsel, 
  Consumer Bankers Association...................................     8
    Prepared statement...........................................    33

              Additional Material Supplied for the Record

Ally Financial press release.....................................    43
Statement submitted by AFR.......................................    45
Bank of America press release....................................    48
Statement submitted by Capital One...............................    53
Statement submitted by CFA.......................................    56
Statement submitted by Chime.....................................    62
Citi press release...............................................    64
Letter submitted by Consumer Reports.............................    66
Letter submitted by CUNA.........................................    68
Letter submitted by DoubleCheck..................................    70
Letter submitted by Gusto........................................    74
Statement submitted by ICBA......................................    77
Statement submitted by NCLC......................................    80
Statement submitted by ABA.......................................    98

                                 (iii)

 
     EXAMINING OVERDRAFT FEES AND THEIR EFFECTS ON WORKING FAMILIES

                              ----------                              


                         WEDNESDAY, MAY 4, 2022

                               U.S. Senate,
  Committee on Banking, Housing, and Urban Affairs,
       Subcommittee on Financial Institutions and Consumer 
                                                Protection,
                                                    Washington, DC.
    The Subcommittee met at 2:30 p.m., via Webex and in room 
538, Dirksen Senate Office Building, Hon. Raphael G. Warnock, 
Chair of the Subcommittee, presiding.

         OPENING STATEMENT OF CHAIR RAPHAEL G. WARNOCK

    Chair Warnock. Good afternoon. This Subcommittee hearing 
will come to order.
    Welcome to the third hearing of the Subcommittee on 
Financial Institutions and Consumer Protection this Congress. 
This hearing is in a hybrid format. Our Members are in person, 
but we will have witnesses testifying both in person and by 
video. We are grateful for their presence.
    I am honored to chair this Subcommittee and to work with 
Ranking Member Thom Tillis to lower the everyday costs for 
Georgians and Americans and to ensure stability in our 
financial institutions that serve families, small businesses, 
and communities in Georgia and all around our country, and I am 
proud of our efforts to ensure that communities have equal 
access to the financial resources that build an economy that 
works for all Americans.
    Today's hearing will examine the financial services 
industry's practices and innovations around overdraft fees and 
the effects these fees, or lack of fees, have on hardworking 
families.
    The economic turbulence of the COVID-19 pandemic has pushed 
working families to the brink. Thanks in part to the relief 
passed by Congress to combat the pandemic, including the 
American Rescue Plan, our Nation is recovering and rebuilding. 
Still, there is more Congress must do to bring financial 
stability to hardworking families in Georgia and all across the 
country.
    And heavy overdraft fees, these onerous fees, keep people 
within cycles of debt and poverty. Last December, the CFPB 
released a report that many banks have a, quote, deep 
dependence on overdraft fees. Some banks that make billions of 
dollars per year pad their profits with billions more from 
charging disproportionate fees, as much as $38 for overdrafting 
just a few dollars beyond what is allowed. And so someone 
swipes their card for $2 cup of coffee, as working families 
work from day to day to make their lives work, and they end up 
spending 40 bucks for a $2 cup of coffee.
    Fees are also keeping hardworking Americans out of our 
financial system, particularly those living on the edge of our 
economy. One-third of unbanked households cite high fees as a 
reason that they remain without a bank account.
    And we know these types of fees affect people of color at a 
disproportionate rate. Studies have found that, on average, 
banks with branches in predominantly Black neighborhoods charge 
more for overdraft services. In addition, customers who 
overdraft the most throughout the year tend to have lower 
income, poor credit scores, and are disproportionately Black 
and Hispanic. It is a vicious cycle.
    In response to the uncertainty brought on our Nation by the 
pandemic, many banks moved to waive credit fees charged to 
their customers, like overdraft fees and fees for nonsufficient 
funds. This is in sharp contrast to how the industry responded 
after the 2008 financial crisis. And I want to applaud those 
banks for making the right choice to help communities, and they 
have demonstrated that it is possible to make the right choice 
and still be prosperous in their businesses.
    Some of these same banks have now voluntarily made these 
changes permanent, and every month, to their credit, we hear of 
more following their peers in doing the same. That is good 
news. Additionally, many fintech companies, like the one before 
the Subcommittee today, are also offering innovative new 
products and services to help customers avoid fees.
    This is not theoretical stuff for me. I have heard from 
Georgians directly about the negative effects overdrafts can 
have on their lives, and overdraft fees. In the CFPB's request 
for feedback on fees, one Georgian serving in our military 
wrote about how technical glitches and shady business practices 
by their large bank cost them money and stress even while they 
were preparing to deploy to a war zone. In another comment, a 
student at Georgia Tech wrote about how what little money they 
had while studying for an engineering degree was being, quote, 
skimmed off by these fees.
    This is also personal for me. In addition to serving as a 
Senator for Georgia, I am also the senior pastor of the 
historic Ebenezer Baptist Church in Atlanta. My church counts 
among its parishioners Georgians from every walk of life, and 
we look out for each other.
    As a pastor and a Senator, I see my work as grounded in 
serving others and my community, and I want to extend this call 
to our Nation's banks, credit unions, fintechs, and other 
financial institutions. I believe Congress, and this 
Subcommittee in particular, have an important role to play in 
ensuring that the financial institutions that support our 
communities and our small businesses and working families have 
the resources, tools, and support to continue their important 
work. Nevertheless, at the same time, we must hold financial 
institutions accountable when they juice their profits off the 
backs of struggling, vulnerable Americans and ensure that they 
are not looking at these customers as easy marks to be taken 
advantage of with onerous or opaque fees.
    I remain focused on lowering costs for Georgians and saving 
them money. Like all of my hearings, this hearing in the end is 
about helping people, ordinary people, hardworking families, 
and helping small businesses. As American families, small 
businesses, and communities recover, we must ensure they have 
the resources they need not only to survive but also to thrive.
    So, welcome and thank you so very much for being here.
    I will now turn to Ranking Member Tillis for his opening 
statement.

            OPENING STATEMENT OF SENATOR THOM TILLIS

    Senator Tillis [presiding]. Thank you, Chairman Warnock, 
for holding this hearing and thanks to the witnesses here in 
the committee room and connecting virtually.
    I have long supported the policies that ensure the United 
States enjoys the healthiest and most diverse financial 
services ecosystem in the world. Our current mix of globally 
systemic financial institutions, superregionals, regionals, 
local community banks, and credit unions, along with an 
increasing number of fintechs, provide tremendous consumer 
choice across a wide variety of platforms and products. The 
topic of overdraft fees is no different.
    The financial services industry has worked to tailor its 
products and create new ones, all while responding to changes 
in Government regulation, financial innovation, and obviously 
the needs and preferences of the American consumer. While there 
have been voices in Congress and Federal regulators advocating 
for further action in this space, I believe it is clear the 
financial services industry has, through the market powers of 
competition and innovation, already adopted consumer-friendly 
policies and products regarding overdraft.
    It is critical to understand, since 2010, debit overdraft 
services at point of sale ATMs can only occur after consumers 
expressly opt in to be a part of the program, and not only do 
consumers have to opt in to the arrangement, the data shows 
that greater than 60 percent of all overdrafts occur when 
consumers intentionally utilize the service. Comments by some 
insinuating that financial institutions trap unaware customers 
into these products, when consumers are presented with opt-in 
provisions from the start and subsequent notifications 
explaining they can terminate the services at any time, seem to 
be unfounded.
    Likewise, it is important to point out that following the 
2008 financial crisis some Federal financial regulators under 
the Obama administration emphasized the reliable and 
countercyclical nature of overdraft revenue as an appropriate 
tool for ensuring the stability of the banks' balance sheets. 
Some went so far as to express the desire to see overdraft 
revenue when grading banks on the well-known CAMELS rating 
system. The irony that banks may now run afoul of Federal 
regulators on overdraft, after being encouraged to seek it out 
by many of the same regulators a little more than a decade ago, 
is not lost on me.
    Despite these headwinds, the financial services industry 
has innovated, adapted, and responded to regulators' and 
consumer needs. From fintechs that supply short-term liquidity 
protection to banks and credit unions implementing consumer 
friendly policies that allow for increased flexibility as 
consumers near a zero balance, the American financial services 
system continues to provide unprecedented levels of consumer 
choice, and they are increasing every day.
    Some financial institutions have moved to eliminate 
overdraft fees. Others have drastically reduced fees associated 
with utilizing the service or increased overdraft coverage. 
What is abundantly clear across the board is that these 
institutions have taken these actions without the need for 
overarching or burdensome Government regulation through 
competition.
    Data bears this point out. According to a report from the 
data analytics company, Curinos--this is their quote--frequent 
overdraft use fell by 40 percent to 4.9 percent between 2010 
and 2020 in the U.S. Overdraft revenue fell approximately 57 
percent, from $40 billion in 2008 to $17 billion in 2019.
    The report goes on to note that new entrants, including 
fintechs and challenger banks, have created solutions to better 
manage or reduce the cost of overdraft. These entities have 
experienced a 40 percent improvement in account acquisition 
since 2017. Financial institutions that have not adopted 
overdraft innovation have experienced nearly a 30 percent 
reduction in consumer acquisition. The market forces seem to be 
working. These are dramatic shifts that have not needed 
lawmaking or regulation to become a reality.
    As such, I would ask my colleagues on this Committee and 
others across Congress, and within the regulatory agencies, to 
understand that contemporary overdraft policies are decidedly 
pro-consumer. Fees for many are nonexistent. For others, they 
have largely been reduce to the smallest amount necessary to 
cover operational costs, mitigate risk, or deter habitual use 
by a customer. They are known to the customer, and they simply 
should not be classified as junk fees despite what some wish to 
allege. I look forward to exploring this issue further with 
Chairman Warnock.
    I will say in closing there is no doubt in my mind that 
some people may get caught up in a bad practice, but let us not 
cast the entire industry as being bad actors. I think the 
industry is moving in the right direction. Consumer choice and 
competition is producing viable products. So let us narrow our 
focus in Congress to not add more burdens to the majority of 
the industry that, in my opinion, is doing a good job.
    Thank you, Mr. Chair.
    I believe the Chair and I have agreed. He is gone. We are 
playing ping-pong now with vote-a-rama, or many vote-a-rama I 
guess we could call that today, and so I apologize that he is 
not present.
    But testifying today will be: Aaron Klein, who is the 
senior fellow in Economic Studies at the Brooking Institution. 
Also testifying is Mr. Jason Wilk, who is the founder and Chief 
Executive Officer of Dave. Mr. Wilk will be testifying remotely 
from California.
    Mr. Wilk, can you hear us?
    Mr. Wilk. I can.
    Senator Tillis. Good. And then finally, our last witness is 
David Pommerehn, who is the Senior Vice President and General 
Counsel of the Consumer Bankers Association.
    We appreciate your testimony today. I am going to turn to 
you, but before I do maybe I should wait until Chair Warnock 
comes back to get unanimous consent. I think, procedurally, I 
cannot do it until another Member is in the room for a 
statement from the American Bankers Association. So I will hold 
that when he is back present.
    So we will go ahead and start with Mr. Klein. Welcome.

 STATEMENT OF AARON KLEIN, SENIOR FELLOW IN ECONOMIC STUDIES, 
                     BROOKINGS INSTITUTION

    Mr. Klein. Thank you very much, Chairman Warnock, Ranking 
Member Tillis. Thank you for holding this timely hearing.
    Many banks have announced sweeping changes to their 
overdraft policies. By my calculations, changes in policies 
announced by 14 banks, including most of the largest, will 
amount to $5 billion a year in savings for families living 
paycheck to paycheck. If these savings were distributed evenly 
across the country on a per capita basis, a State like Georgia 
would expect savings of $162 million a year. Industry made 
sweeping changes without any new legislation or new regulation, 
as Senator Tillis rightly pointed out, and I commend these 
banks for their actions.
    Today, I will focus on three main points, all of which are 
covered in more detail in my written testimony: one, 
understanding overdrafts, two, examining changes in overdraft 
policies, and three, additional policy solutions which are 
still needed to address the core problem; the less money you 
have the more money it costs to manage your money.
    The key to understanding overdraft is that a small number 
of consumers account for the vast majority of fees; 80 percent 
of overdraft revenues come from 9 percent of account holders. 
These heavy overdrafters pay, on average, $380 a year in 
overdraft fees, and as Chairman Warnock rightly pointed out, 
cost is the main reason people leave the banking system.
    Overdraft revenues vary substantially among banks. Some 
large banks average more than seven times as much as others in 
fees per customer. It is hard to imagine that among the 
Nation's largest banks this variation in their share of heavy 
overdrafters is this drastic. Hence, practices and products 
offered by banks allow some to generate much more revenue than 
others. For a handful of small banks, overdraft is the business 
model. The small Woodforest National Bank, operating mostly in 
the Southeast, generates more in overdraft revenues per year 
than Citibank. Regulators have been asleep at the switch, 
giving these banks passing regulatory grades with this unsafe 
and unsound business practice.
    I want to talk about the changes the banks have been making 
in overdraft fees, and they broadly fall into four buckets: 
reducing fees, changing time, providing small-dollar liquidity 
in different forms, and consumer empowerment. My written 
testimony goes into detail on all four, but I want to focus 
your attention on one of the most impactful and least 
appreciated, changing time.
    Overdraft is as much about running out of time as money. 
People go negative in their bank account due to the mismatch in 
time between credits and debits. These problems are exacerbated 
by America's antiquated payment system. Among the solutions the 
banks have made are 24- to 48-hour grace periods and giving 
consumers earlier access to their wages, a reminder that direct 
deposit is far from instant.
    Time is money. The provision of extra time is huge. PNC, 
among the first banks to change overdraft fees, reports that 63 
percent of their customers who end the day with a negative 
balance are able to fix the problem and avoid an overdraft 
thanks to extra time. The average time to cure is only 13 
hours, evidence the majority of their customers' problems are 
very short-term mismatches. From PNC's experience, 75 percent 
of the reduction in overdraft fees was the result of extra time 
and change on the limits of total overdrafts.
    For the Committee's consideration, I would like to offer 
five policy solutions to address the problems that harm working 
families.
    First, stop overdraft giants with new regulation. Any 
institution that relies on overdraft fees for a majority of its 
profit in multiple consecutive years is operating in an unsafe 
and unsound business model.
    Two, credit unions should disclose data just like banks. 
Currently, all banks over a billion dollars in size must tell 
us how much overdraft revenue they have. Credit unions should 
do the same.
    Three, real-time payments. As Treasury Secretary Yellen 
recently stated, America's slow payment system is a tax on 
working families. If a subset of banks making payments faster 
can result in billions of savings for families living paycheck 
to paycheck, consider the impact of a full transition to real 
time payments. The Federal Reserve could solve some of this 
problem today using regulatory authority it was given, but it 
has not in 20 years, and it will not as long as it prioritizes 
operating its own payment system above regulating the Nation's 
payment systems. Legislation is needed, as previously proposed 
by Senators Warren and Van Hollen.
    Fourth, we need smarter payment regulation.
    And fifth, we need universal Bank-On-style accounts. All 
financial institutions should provide these accounts which the 
American Bankers Association has called best practices. That 
standard should be universal.
    In conclusion, the explosive growth of America's overdrafts 
reveals deeper structural problems with our basic banking 
system. The positive changes by banks on overdraft fees are a 
step in the right direction but do not address the structural 
problems. More needs to be done.
    I appreciate the opportunity to testify before the 
Committee and look forward to answering your questions. Thank 
you.
    Senator Tillis. Thank you, Mr. Klein.
    Mr. Wilk.

 STATEMENT OF JASON WILK, FOUNDER AND CHIEF EXECUTIVE OFFICER, 
                              DAVE

    Mr. Wilk. Good afternoon, Chairman Warnock, Ranking Member 
Tillis, and distinguished Members of the Subcommittee. Thank 
you for inviting me to participate in today's hearing. It is an 
honor.
    The topic of the hearing aligns closely with the story of 
the company I started, Dave. First and foremost, Dave is a 
technology company building financial solutions to serve 
everyday Americans and working families who are struggling with 
some or all aspects of their financial lives. Dave is a 
powerful app designed to unlock fair financial services for the 
170 million Americans who need it most, the financially 
vulnerable and financially coping. Our mission was, and is, to 
build products that level the financial playing field.
    Everyday Americans are simply paying too much to access the 
financial system compared to those who are financially healthy. 
By estimates, there are 35 million people who are financially 
vulnerable, struggling with every aspect of their financial 
life. These individuals, who overdraft 10 to 20 times per year, 
are reliant on single-pay credit, need help building credit and 
finding new ways to make money.
    Additionally, there are approximately 131 million who are 
financially coping, struggling with some but not all aspects of 
their financial life. This group is overdrafting several times 
per year, need help building credit, and need access to 
affordable, short- and long-term credit, savings, and investing 
advice.
    Our goal in 2017 was to start by disrupting overdraft, a 
proven pain point for the both the financially vulnerable and 
the financially coping. Americans pay more than $20 billion 
annually in overdraft fees to traditional banks, with the 
typical transaction causing overdraft being those to buy gas 
and groceries.
    I, myself, was a victim of significant amounts of overdraft 
fees when I was in college and following school. I had a job 
where my salary was capped at $30,000 a year, living in San 
Francisco and having to travel back to Los Angeles. I was 
consistently hit with overdraft fees while living on couches. 
And if it was happening to me, as somebody who grew up in a 
middle-class family, then I can only imagine the impacts as you 
move down the income scale, especially moving into 
predominantly minority and lower-income communities.
    Through research and also based on my own personal 
experience, we realized that consumers are primarily using 
overdraft knowingly as a form of overpriced, short-term credit 
to buy everyday essentials. Against this backdrop in 2017, Dave 
launched an app where customers can link any bank account in 
the country and we offer them a far superior overdraft 
solution.
    Our first product, called ExtraCash, is an underwritten, 
interest-free advance up to $250 that customers can use to buy 
everyday essentials without incurring overdraft fees. This 
product has changed lives and propelled Dave to over six 
billion customers in under 5 years. ExtraCash has been used 
over 50 million times as well. This product does not have any 
mandatory fees. In fact, part of the revenue is derived from 
customers paying what they think is fair by giving us a tip.
    Our second solution to fight overdraft is called Insights, 
which notifies customers about upcoming bills like Netflix or 
water and power that could send a customer's account into 
negative status. We give customers up to a week of 
notifications in advance to help them cure bills that could 
cause their account to go negative.
    Last, and a third part of our overdraft solution, was to be 
the first fintech to help put money back in our customers' 
pockets with a solution called Side Hustle. This product helps 
connect our customers with the gig economy to companies like 
Uber, Instacart, DoorDash, Lyft, and other partners. We have 
facilitated nearly 3 million applications for work since 2019.
    Dave's approach to overdraft has saved our members over 
$1.5 billion in overdraft fees and helped them earn over $300 
million in income with Side Hustle. In 2021, we followed up 
with our own bank account launch, which we launched in December 
2020 through a partnership with Evolve Bank & Trust. Dave 
Banking comes with no minimum balance or overdraft fees and has 
access to over 50,000 free ATMs. Our ultimate goal is to have 
customers migrate to this as their primary account status and 
stop paying these overdraft fees.
    As you can see, at Dave, we are consistently adding 
services to our product set to improve our customers' financial 
health. To that end, later this year, we plan to add another, 
allowing customers to build their credit when using our Dave 
ExtraCash product for some of their regular transactions.
    At the end of the day, Dave stands with the everyday 
person, the everyday mom or dad, who makes up the backbone of 
today's working family. We realize that overdraft is a short 
term credit solution for the next tank of gas or bag of 
groceries and it is critical to millions of Americans, but 
traditional financial services fail to deliver a fair product. 
At Dave, we are working to level the financial playing field 
for those who need it most.
    Thank you again for the invitation to appear before you. I 
look forward to answering your questions.
    Chair Warnock [presiding]. Thank you so very much. Sorry, I 
had to step out to vote. We have got a number of things going 
on as usual around here. Thank you, Mr. Wilk.
    Next, we will hear from Mr. Pommerehn.

STATEMENT OF DAVID POMMEREHN, SENIOR VICE PRESIDENT AND GENERAL 
             COUNSEL, CONSUMER BANKERS ASSOCIATION

    Mr. Pommerehn. Thank you, Chairman Warnock and Ranking 
Member Tillis and Members of the Subcommittee.
    I am David Pommerehn. I am General Counsel for the Consumer 
Bankers Association. CBA represents the retail banking 
industry, whose products and services provide access to credit 
to millions of consumers and small businesses. I greatly 
appreciate the opportunity to testify before you today.
    As Chairman Warnock mentioned at the beginning of his--in 
his opening statement, with ongoing financial difficulties 
exacerbated by the pandemic, average Americans are struggling 
to cover emergency cash-flow needs. Banks are aware of these 
challenges--of the challenges consumers are facing and are 
working diligently to provide access to safe and affordable 
products.
    One important tool in meeting these needs is overdraft 
services. This product is largely based on necessity and choice 
and, for many, may be the last viable source of short-term 
liquidity.
    In 2010, significant changes enhanced consumer protections 
for overdraft services by increasing transparency and improving 
disclosures. Changes to the Electronic Funds Transfer Act and 
the Truth in Savings Act required consumers be afforded the 
ability to affirmatively opt in to overdraft services for point 
of sale debit card transactions and for ATM withdrawals. These 
changes also required the consumer to receive disclosures 
concerning their right to revoke the decision to opt in at any 
time and including an accounts statement disclosure whenever 
they actually incur an overdraft fee. Consumer choice is 
central to the functionality of the overdraft product and 
allows for maximum transparency.
    Consumer demand for overdraft services is also driving 
innovation, as we have heard before. This has led banks to 
increase the affordability and access for those who use 
overdraft to meet their cash-flow needs. A 2021 study, 
referenced by Senator Tillis, by Curinos, a global data 
intelligence firm, found that overdraft fee revenue is down 
significantly, roughly falling 57 percent from 2008 until 2019. 
Put in real dollars, overdraft fee revenue for banks fell from 
nearly $40 billion in 2008 to nearly $17 billion in 2019. 
Curinos projects that this significant decline in fee revenue 
will continue as a result of bank-led innovation.
    In fact, this innovation is driving the market and 
competition, and organizations, as Senator Tillis referenced 
before, that have adopted better solutions for overdraft 
management have been able to increase their base growth 
accounts by about roughly 40 percent since 2017. Conversely, 
those institutions that did not make change saw roughly a 30 
percent reduction in growth in their accounts.
    Bank-led initiatives aimed to help consumers avoid fees 
have also dramatically reduced the number of small purchases 
tied to overdraft. Since 2008, the average size of a purchase 
triggering an overdraft fee quadrupled from $50 to $200.
    The Curinos research also found consumers demonstrate a 
deep understanding of who they bank with and how they use 
overdraft. In fact, more than 80 percent of overdraft 
transactions come from consumers with the clear intention of 
using it to cover their emergency payments, and they are well 
aware that they would incur a cost and would like to incur a 
cost to make sure that they have access to that revenue stream.
    Outside of overdraft, few options remain for consumers to 
meet their cash-flow needs within the highly regulated banking 
industry. In 2021, OCC Acting Comptroller Michael Hsu 
recognized overdraft services as one of the last viable sources 
of short-term liquidity for U.S. consumers. Additionally, just 
last week, CFPB Director Rohit Chopra underscored that the 
overdraft market is evolving and competition is benefiting 
consumers.
    When debating policy affecting overdraft services, we urge 
policymakers to consider additional solutions to help consumers 
who need short-term cash-flow options, such as small-dollar 
loans. A recent bipartisan GAO study highlighted the fact that 
banks are hesitant to offer such loans in part because of ever 
evolving regulatory changes. Specifically, the GAO noted that 
in 2013 to 2020 Federal regulators issued 19 separate policy 
considerations related to small-dollar loans. These changes 
create doubt about the stability of future regulations 
concerning short-term loan products and adversely impact 
consumer access. Without access to affordable bank-offered 
products and services, consumers will be forced to turn to 
alternative, underregulated products offered by ill-supervised 
organizations.
    Banks are listening to their customers. They are investing 
significant resources toward innovating and reducing the cost 
of overdraft services, and it is benefiting the families they 
serve.
    We encourage policymakers to work with all stakeholders, 
including doing direct consumer research, to avoid any 
unnecessary restraint to overdraft products.
    I thank you for your time, I thank you for the ability to 
appear here today, and I look forward to your questions.
    Chair Warnock. Thank you all so much for your testimony, 
and let us begin with our questions.
    In many cases, Americans who overdraft are likely to do so 
more than once. According to the CFPB, banks charge 80 percent 
of their overdraft fees to fewer than 9 percent of account 
holders and the majority of fees collected come from an even 
smaller percent of that group. The CFPB also found that 
consumers who frequently overdraft are more likely to be credit 
constrained, have lower credit scores, and are less likely to 
have access to affordable credit. These are everyday, 
hardworking people.
    Mr. Klein, is the use of overdraft services a symptom of 
financial distress, and what point do these fees only 
contribute to that cycle?
    I would also like to hear your comment about where the 
banks are in terms of their collection of overdraft fees. We 
heard the data around 2019, but I think last year banks earned 
$33 billion in overdraft fees. Could you respond to that and 
speak to the use of overdraft fees and whether or not you see 
that as a symptom of financial distress? And, do these fees 
help people, or do they contribute to the cycle?
    Mr. Klein. So, Chairman, thank you very much for that 
thoughtful question because it is both a symptom and a cause. 
If you have $380 a year in overdraft fees, that is 1 percent of 
your income if you earn $38,000 a year, which is, you know, a 
reasonable--not that far off of the median wage, particularly 
in some parts of the country.
    And as you point out, these heavy overdrafters, who use the 
product frequently, have become targets for certain banks and 
certain business models who actively seek to find them. You 
mentioned the member in Georgia of the military. Well, Armed 
Forces Bank, which makes more than 75 percent of its profit on 
overdraft fees, averages $150 a year in overdraft fees per 
account. Most of the banks with good practices are at $5, $10 a 
year, and the other banks that are making changes are headed in 
that direction.
    They make $150 a year, and Moody Air Force Base in Georgia 
is one of their locations. Right. They are targeting these 
folks. And it is not so easy, if you are enlisted and deployed, 
to change your bank and do all those different payments and all 
those streams.
    So it is a symptom; it is a symptom both of not having 
enough money and not having enough time. As the data shows from 
PNC and other banks, and my own research shows, time is money.
    Seventy percent of customers at a check cashing store have 
a bank account. Now why are you at a check cashing store if you 
have a bank account? Well, on Friday, if I get a check, how am 
I going to pay for my mom's flowers on Mother's Day? If I 
deposit it in a bank, the money will not be there until Monday, 
Tuesday, maybe Wednesday. I do not know for sure. The bank does 
not know for sure. Check casher gives me cash.
    It is one of the reasons why $66 million of the first round 
of stimulus checks--because, remember, the Treasury sent checks 
to 70 million families--ended up in the hands of check cashers. 
So I think it is both a symptom and a cause.
    For your second part of your questions, I am not sure about 
that Curinos study. I read the appendix. It was like a 1 page 
pamphlet, not a study in there.
    You know, there are two different data sources a lot of 
people use. One is a CFPB, which shows 15 to 16 billion a year, 
and the other is this Moebs study, which is like 30 to 35 
billion a year, and it is hard to reconcile the two sometimes.
    There are two differences in them that have popped up. One 
is Moebs counts credit unions, which I think nobody here knows 
the data on it because they are exempt from filing. I do not 
know why if you run a $30 billion a year credit union why you 
cannot tell the same as a bank. And two is there is an 
assumption in the Bureau's methodology that all banks operate 
in the same fashion, and so the small folks are like the big 
folks and if I know the total share.
    I question that assumption. For my own data, there are a 
handful of banks for whom these heavy overdrafters are their 
entire business model, and that is a very different type of 
institution. It is more like a check casher with a banking 
charter than a big, diversified bank that you describe, which 
makes money off of overdraft but makes money off of a lot of 
other things.
    Chair Warnock. Thank you so much.
    Do you believe that the low fees--well, Mr. Wilk, for 
consumers who frequently use your company's services, what 
effect does your company have on customers' overall financial 
health, and do you believe that the low fees that your service 
charges encourages more overdrafting?
    Mr. Wilk. Thank you for the question, Chairman. So 
ultimately, we view overdraft as a positive product. It is just 
the fees that people have access to are punitive and the ones 
that we are trying to eradicate.
    The average customer at Dave, when they connect their 
account, we are able to see their past year of transactions so 
we can see that our average member is spending about $400 in 
overdraft fees to their bank. After using Dave, we can cut that 
down significantly just by providing our own advance feature on 
top of their existing bank account. That saves our customers, 
on average, about $150 to $200 per year in fees as their banks 
are still able to charge them fees for some elements of 
overdraft we are not able to prevent them from. If we can get a 
customer to sign up for our own checking account product, we 
can eradicate those fees entirely as our checking account does 
not have any overdraft fees or minimum balance fees.
    Ultimately, what we are trying to do is help the average 
customer be able to afford a $400 emergency, which most 
Americans cannot afford. I think it is about 60 percent of 
people cannot afford a $400 emergency. And so we think we are 
making meaningful progress on our ability to cure that for 
customers.
    Additionally, with our upcoming credit building solution, 
our focus is on how we can graduate our members from overdraft 
into more reasonable, short-term credit solutions.
    Chair Warnock. Thank you so much. We continue with our 
questions, and I will turn now to Ranking Member Tillis.
    Senator Tillis. Thank you, Chairman Warnock. Again, thanks 
to the witnesses for being here.
    Mr. Pommerehn, I want to make sure I have got this right. 
You have to opt in to an overdraft program, right?
    Mr. Pommerehn. Yes, sir, for point-of-sale, debit card 
transactions, and for ATM transactions, you have to 
affirmatively opt in at account opening.
    Senator Tillis. And I do not know if you have any research 
data, but do you think that many of those who consciously 
decide to opt in see value in the program?
    Mr. Pommerehn. Well, as the Curinos study shows--and I 
apologize for just the 1-pager in the appendix. We will provide 
the full study to the Committee.
    Senator Tillis. Yeah.
    Mr. Pommerehn. To the witnesses. It points out 80 percent 
of consumers who opt in, in fact, use the product knowingly, 
and so it is a product consumers want even in the--even when 
there are other products that do not offer overdraft services 
at all or even offer an opt in to those overdraft services.
    Senator Tillis. What do you think about the 
characterization of this as a junk fee? It appears to me to 
serve a purpose.
    Mr. Pommerehn. It does; it serves a--it does serve a 
purpose. It covers liquidity needs for consumers who do not 
have other alternatives, for the most part. Knowingly using an 
overdraft product creates a situation in which a consumer can 
get that gas or can get those groceries that they need to use, 
but they have to affirmatively opt in to do so first.
    If the product is not opted in--if you do not opt into the 
product, you do not receive the service. That is bottom line.
    So consumers who utilize the service often use it to cover 
those emergency liquidity needs, and I would say that there are 
not a whole lot of viable solutions on the market today from 
banking institutions that would help this consumer with their 
short-term liquidity needs
    Senator Tillis. Yeah. Mr. Chairman, I want to wait until 
you get back. I do not think I can do unanimous consent when I 
am the only one in the room, but I would ask unanimous consent 
that I have the statement from the American Bankers Association 
submitted for the record.
    Chair Warnock. Without objection.
    Senator Tillis. Thank you.
    Mr. Wilk, your business, Dave, do you take all comers?
    Mr. Wilk. Sorry. Could you repeat that? Do we take who?
    Senator Tillis. Do you take all comers? So if somebody goes 
to your web site, is there anything that would constrain them 
from getting access to your products and services?
    Mr. Wilk. No, there is not. As long as they can pass a 
basic KYC test, which we can identify that person as a--with 
their Social Security Number, address, and phone number, they 
can access our service.
    Senator Tillis. So, credit history, payment history, no 
factors like that weigh into it?
    Mr. Wilk. That is right. So as long as they can pass KYC, 
they are able to immediately get accepted for a Dave checking 
account.
    Senator Tillis. OK.
    Mr. Wilk. For a customer to be approved for our ExtraCash, 
we do not use the legacy credit system, so a customer can be 
approved just based on their transaction history alone. We do 
not look at----
    Senator Tillis. I know you mentioned that there is kind of 
an opt-in for a tip for those who may have taken advantage of 
what would be the equivalent of overdraft coverage, but how do 
you make money?
    Mr. Wilk. So we make money in several ways at the business. 
Starting with our checking account, we make money off of 
interchange. So every time somebody swipes their card, we make 
about 1 to 1.5 percent of that transaction.
    Additionally, for our Insights product, where we help 
customers predict upcoming bills, like their Netflix and water 
and power, we charge a $1 a month subscription for that.
    As far as Side Hustle, we make money from referral fees 
from employers when customers apply for work.
    And on the ExtraCash feature itself, the customer can 
access that product entirely for free, but we do make money 
from two optional fee structures, one being tips, where 
customers can give us an optional fee if they enjoy the 
service. On average, that tip is around $4 for people that do 
tip us. In comparison to a $34 or $35 overdraft fee, we think 
that is an incredibly good deal for consumers.
    Additionally, we have an expedited processing fee. So if 
someone wants to have the money sent to their bank account via 
ACH, they can have the money in their account absolutely for 
free. If they want the money sent to their debit card, which we 
use the Visa and MasterCard send rails, we do charge a small 
processing fee similar to a Venmo or Cash App.
    Senator Tillis. Mr. Klein, why wouldn't the bank that you 
mentioned that has a significant revenue stream from overdraft 
fees, why wouldn't that be ripe for the picking for a fintech 
like Dave?
    Mr. Klein. So it is a good question. Bank accounts like 
this are often sticky in terms of that, particularly the cost 
of transitioning. As I said, imagine if you are a military 
family and you are deployed, right, and you are dealing with 
all this stuff. You have a family at home, with kids. Changing 
your bank account is very sticky and messy. You have a lot of 
automatic payments, a lot of automatic transitions. And, you 
have to live your life as you are working paycheck to paycheck, 
trying to make ends meet, and so it becomes very difficult to 
have that type of situation.
    Senator Tillis. But it sounds like to me in the case of the 
Dave platform they would not necessarily need the bank; they 
would just simply no longer use that service.
    Mr. Klein. Well, I think in terms of having the direct 
deposits--I mean, part of the problem here is there are lots of 
other ways in which these overdraft fees are generated. A 
couple that were mentioned were a point-of-sale and ATM, but a 
different trick that is done is reordering payment flows, from 
biggest to smallest and the time.
    You know, the way that our payment system works under this 
ACH system it is like a batch. It is like putting yourself in 
the laundry. It all goes in together and comes out at once. It 
is not in the order that you are done.
    Now most banks are pretty good at this best practice. A 
recent study by the CFPB found almost 90 percent of banks and 
two-thirds of credit unions posted credits before debits, put 
the money in your account before they took it out. However, 
one-third of credit unions and 10 percent of banks posted some 
debits before credits.
    So the time--once you create this time wiggle room, some 
institutions have the ability to reorder your transactions in a 
way that maximizes overdraft fees for them. Some of them are 
leaning deep into that product and that practice, and that is a 
practice that I think is problematic and unfair, and it is one 
that you cannot be--opting in does not really have meaning in 
that context when everything--when the bank is deciding to 
reorder your transactions.
    Senator Tillis. I am going to have to go vote now, Mr. 
Chairman, but I just want to get back to the concept of really 
understanding how the market is transitioning and really 
understanding the potential additional complexity and cost and 
threat to banking, to the banked and the unbanked, if you do 
not get incremental regulations right.
    And if I had not seen--and I would love for you to submit 
for the record. A trend, it seems like the market forces and 
innovation are pushing things in the right direction. And it 
always gives me pause when Government wants to come in because 
when Government comes in it tends to stifle competition and 
stifle innovation.
    So it is just like the hearing that I had in Judiciary 
today on interchange fees, where some want to cap them. I think 
that that could have--as some aspects of the Durbin amendment 
had--negative, unintended consequences.
    So as we move forward and discuss potential policy options, 
we need to fully understand this and not necessarily stand in 
the way of competition and innovation.
    Thank you, Mr. Chair.
    Chair Warnock. Thank you, Ranking Member Tillis.
    I understand that Senator Cortez Masto will come virtually.
    Senator Cortez Masto. I am here. Hello. Thank you, Mr. 
Chairman. Thank you to our panelists.
    Mr. Klein, let me start with you. There are more than 200 
bank and credit union accounts that meet the Bank On national 
account standards. Eleven of these financial institutions 
happen to be in Nevada. In Nevada, Bank On accounts are partly 
why more Nevadans have access to affordable bank accounts.
    So, Mr. Klein, could you do me a favor? Can you explain how 
Bank On accounts have helped millions of people access the 
banking system?
    Mr. Klein. Absolutely, Senator. The FDIC began a pilot 
program in 2012 to come up with a model for what they called a 
safe account, and these were accounts that had low costs, had 
full access to online mobile banking, debit cards, et cetera, 
did not charge people for basic standard services, and did not 
have overdrafts. These accounts have proven incredibly popular. 
I think one out of every five new accounts at Citibank, for 
example, was one of these types of accounts.
    But in order to do it, the bank has to decide and go 
through a process. The Bank On nonprofit picked up this mantle 
from the FDIC and started a certification process. And then the 
bank has to not just have it somewhere but have it front and 
center, offer it and make it clear and available to the 
consumer, not just somewhere hidden on a shelf. When that 
happens, these accounts are popular, and they are profitable 
for banks. They might not be as profitable as squeezing folks 
for overdraft fees, but they more than cover their costs.
    Remember, there is a punitive nature to these overdraft 
fees. It is not $35 for a bank to provide a $2 cup of coffee 
credit that gets paid back, in PNC's case, on average, in 13 
hours. Right?
    So these accounts have proven so popular and successful 
that the American Bankers Association has called it a best 
practice. If that can be a best practice for industry, it ought 
to be mandatory. There is draft discussion language in the 
House to require this for all institutions over $10 billion. 
And I do not see why every bank in America, and credit union, 
who is chartered by the Federal Government and provides a 
Government service, cannot provide one of these low-cost, 
universal accounts to everyone.
    Senator Cortez Masto. And so, Mr. Pommerehn, let me ask you 
to weigh in on this. Do you see the other half of financial 
institutions that do not yet offer Bank On accounts doing so 
voluntarily?
    Pommerehn. Yeah, thank you for the question, Senator. Many 
of our member institutions do offer Bank On accounts, and many 
of them offer accounts that do not carry overdraft fees 
whatsoever. Even, there is no opt-in process for those 
accounts.
    I would just--it is always good to keep in mind, though, 
that even a normal checking account there is an opt-in process. 
The consumer, for point-of-sale and ATM transactions, as Mr. 
Klein points out, has to affirmatively opt in to those 
services.
    So there is a need, obviously, out there for short-term 
liquidity options. Overdraft is just one tool in that tool box. 
And we encourage policymakers to explore alternatives, such as 
small-dollar lending, to help consumers mitigate the value--the 
overdraft fees that they may incur.
    But banks are moving that way, as we have heard. They are 
innovating in this space rapidly, and they have been doing it 
for many years now. Huntington's 24-hour grace was put in place 
11, 12 years ago. The de minimis exemptions to take care of 
that proverbial cup of coffee, $35 cup of coffee, had been in 
place for many institutions for many years now.
    So the market is moving, consumers are going to 
institutions that offer these types of services or these 
mitigating variables to help them avoid overdraft, and banks 
continue to innovate. And I think you will see more innovation 
in this space as we move forward, as was pointed out, and I 
think overdraft revenue as a whole will be--will severely 
decline in years to come.
    Senator Cortez Masto. Yeah, I would hope so. I was 
listening to the conversation earlier. Any financial 
institution really that survives on overdraft fees has a very 
cruel and, I think, troubling business model that needs to 
change.
    But let me ask Mr. Klein on direct deposit payroll loans. 
Banks know that customers who enroll in direct deposit receive 
regular paychecks, and some banks offer customers access to 
their incoming paycheck 2 business days early at no cost. I am 
wondering if you can talk a little about why access to direct 
deposited payroll up to 2 business days early is a best 
practice.
    Mr. Klein. Sure, Senator. You know, one of the things that 
struck me when I first started writing about this--I made the 
decision, whether it was a mistake or not, to look at some of 
the comments in the Facebook post from the Brookings 
Institution when I was writing about this, and I could not--I 
was stunned about the slow payment system, how many people 
said, ``Well, that does not affect me. I have direct deposit.''
    People think direct deposit is instant. Far from it. If you 
are going to get--if you are going to see your paycheck hit 
your bank on Friday, the odds are that small business has 
already put your money--sent your money. They probably sent it 
on Tuesday, and that money gets held in this antiquated payment 
system.
    Chairman Warnock made the point about small businesses. 
Small businesses do not like having to make payroll 2, 3 days 
early. Meanwhile, customers and people living paycheck to 
paycheck cannot afford to wait. This is particularly 
problematic when the first of the month falls on a Thursday and 
payday falls on a Friday. Again, there is no reason for this 
money to be sitting there. Direct deposits could occur 
instantly if we had a faster payment system or if we used 
something other than the ACH.
    The Treasury Department's own payments for emergency 
stimulus payments that they sent through the banking system 
sent the information on Friday and it did not hit people's 
accounts till Wednesday. How are you supposed to eat and have 
diapers if you ran out of money over the weekend? Giving people 
access to their own money faster, to me, is a small-c, 
conservative idea.
    And the direct deposit system relies on this multiday, slow 
ACH system where America is alone. You go to other countries in 
the world; it is not like this. The Bank of England put in 
real-time payments in 2008. In Singapore, when the Government 
sent the people their emergency money, it was in their account, 
ready to use, in an hour.
    Senator Cortez Masto. Thank you. Thank you again to the 
panelists. So appreciate the conversation.
    Mr. Chairman, thank you.
    Chair Warnock. Thank you. Thank you so very much, Senator 
Cortez Masto.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank you to 
all of our witnesses today.
    And I am going to pick up, Mr. Klein, right where you left 
off because, as you pointed out repeatedly, as I think we all 
know, the current system disadvantages lower-income individuals 
with respect to the timing of payments. And moving to a real 
time payment system would address a lot of that because when 
you are living paycheck to paycheck, and you deposit your 
paycheck 1 day and it takes days to clear, and during those 
days you have to draw on your accounts you get, you know, hit 
with various fees, which is why you have been pushing, I have 
been pushing for a long time, to move the Federal Reserve to 
the FedNow system.
    Senator Warren and I introduced legislation to move in that 
direction, and every time we have a representative from the 
Federal Reserve here I ask them about progress. As you know, we 
are hoping to roll out the FedNow system next year, and I am 
interested in your assessment of where we are and whether or 
not we will be able to hit the ground running when that happens 
based on your understanding of how far along the road we are.
    Mr. Klein. Senator, I thank you for that question. I thank 
you for your tremendous leadership on this issue for many 
years. I am not sure we would be nearly as far along the road 
as we would, in fact, I am positive we would not, without your 
laser-like focus on this issue, but I am very concerned we are 
not there.
    Look, in 2012, the Fed formed a task force called Faster 
Payments 2020 with a mission that we would have real-time 
payments in 2020. They gave themselves 8 years to do that. Now 
keep in mind the Bank of England decided in 2007 to get faster 
payments; 18 months later, they had it. That was when the first 
iPhone came out. The Bank of Mexico put in real time payments 
in 2004, the Bank of Brazil in 2005.
    The Federal Reserve finally committed, after much pressure, 
to develop this FedNow system and said it would take them 5 
years. Why? Now they say maybe we will get in four. Now we see 
all this talk about a central bank digital currency. Now I am 
not here to talk about that, and I have opinions, this or that, 
but what I am very concerned about is an attempt to delay 
FedNow to a later date while we start thinking about CBDC.
    Had we had real-time payments when the Bank of England did, 
we would have over $100 billion less of income inequality in 
America through lower overdraft fees, check cashing fees, 
payday lending fees. I did not even include late fees in some 
of these other fees that are hard to do. So every day we wait 
costs.
    Meanwhile, many of the financial institutions regulated by 
the Fed and the OCC rely on this overdraft, and I am concerned 
about some structural conflicts of interest in a system where 
you have a central bank regulating all payments. The Fed, with 
one regulation, could the first $5,000 of your check available 
immediately, as your legislation and Senator Warren's proposed 
would have done. Congress gave them that authority in the 80s, 
and they have sat on their hands with it until they would build 
their own system.
    It is a structural conflict of interest for the Fed to 
regulate payments and operate their own system, and I am not as 
confident that we will be there within the next year and that 
when it opens it will open in a way that is meaningfully 
inclusive and actually moving everybody immediately.
    I think industry. I think fintech solutions and other 
folks. There is a reason that my fellow witness from Dave is 
able to charge, I think, about 1.5 percent for instant 
payments, and Venmo and PayPal and the rest can do it; 
consumers demand it. And so I am worried that we are going to 
sit here waiting forever for the Fed to provide it.
    Senator Van Hollen. Well, I appreciate your frank 
assessment of where we are. We are going to work to light a 
fire even more under the Fed to get it moving because, as you 
say, every day that goes by without real-time payments is 
another day that especially lower-income folks are getting hit.
    Mr. Pommerehn, it is great to have a University of 
Maryland/University of Baltimore law grad here. Mr. Klein has 
identified some of the tricks that some banks and credit 
unions, and I want to not paint with a broad brush necessarily. 
Senator Tillis is right; not all these institutions engage in 
some of these tricks.
    But you would agree that we should phaseout the practices 
that he has discussed? For example, essentially, the posting of 
debits before credits and the practice of reordering payment 
flows from largest to smallest, would you agree that those 
practices should be phased out?
    Mr. Pommerehn. Thank you, Senator. Yeah, I would say that 
many banks are actually phasing out those practices, as pointed 
out by Mr. Klein. We are moving in that direction. We have been 
for many years now.
    Senator Van Hollen. Right. Again, I think your members have 
been moving in that direction, and I think that is a good 
thing. Do you encourage all your members to phaseout those 
kinds of practices which really are, in my view, trickery?
    Mr. Pommerehn. Senator, we, as a trade association, do not 
counsel our member institutions on what they should or should 
not do. We simply work with them on policy here on Capitol Hill 
and with the Federal regulators. But certainly I think, again, 
we have seen quite significant movement in that space, not just 
in the last year or so but from a decade past.
    Senator Van Hollen. Got it. Well, the sooner we get to 100 
percent the better. And as you point out, we would all like to 
see the market incentivize these changes, but it is when it 
does not that action is necessary.
    Thank you both and thank everybody for their testimony.
    Thank you, Mr. Chairman.
    Chair Warnock. Thank you so much, Mr. Van Hollen.
    I understand that Senator Warren is on the way. In the 
meantime, I will ask another question.
    I think there is consensus here that competition is driving 
down the cost of overdraft. At some banks and credit unions, we 
are seeing movement, but this new low-fee or no-fee approach 
assumes that people can choose their banking services. Not 
everybody actually has the same choices, the people in Wayne 
County, Georgia, for example. According to the FDIC, there are 
only five bank branches in Wayne County and all of them are in 
Jesup. I am from Savannah, so I know where Jesup, Georgia, is. 
So, over 600 square miles, five banks.
    Mr. Klein, what is driving the high level of overdraft fees 
still charged by some banks?
    Mr. Klein. So, Chairman Warnock, I think what we find is a 
small number of people are heavy overdrafters. Some banks find 
themselves with a small share or natural share of those 
customers, other banks change practices in ways that squeeze 
those people or not, and a small handful actively go to seek 
those folks because they are much more profitable customers 
than slightly wealthier people that do not do heavy overdrafts.
    And what you find is that people cycle in and out of the 
banking system on that bottom group. So if 5 to 6 percent of 
households are unbanked and you have another 9 percent of folks 
that are these heavy overdrafters, and you go and you ask the 
unbanked, why did you leave the system, as you pointed out in 
your statement, the number one reason, the system was too 
expensive for me. Right?
    I believe that that is that churn that is going in. Some of 
those folks are leaving the system. Some of those folks are 
coming in.
    In addition, I think the lack of offering products that are 
proper for folk. Right? You asked the question, why are there 
these high fees? The fees are not based on the cost to the 
bank. It is not $35 to the bank to provide an overdraft fee. As 
was briefly said in the long list, part of the purpose is to be 
punitive, to discourage their use. But with these heavy 
overdrafters, it is not discouraging their use; it is simply 
milking them out of money that then structurally reinforces 
their cycle of poverty and struggled that you referenced 
earlier.
    And that is particularly true in communities without many 
banking choices, but there is a bit of an illusion of choice 
because, oh, you have 5,000 banks in America, you have 5,000 
credit unions. Right?
    In reality, the cost of transition is very high in an 
institution, and it is very high for consumers. If you had to 
change your cell phone number, would there be as much 
competition cell phones? Right? But you have to change all your 
banking and routing and other account information. Makes a big 
difference in terms of the structural barriers to change.
    Chair Warnock. Thank you so very much.
    Ms. Warren.
    Senator Warren. Thank you very much, Mr. Chairman, and 
thank you very much for holding this hearing today, very 
important, matters to millions of families across this country. 
And thank you to our witnesses for being here today.
    So during the pandemic, America's banks got a lot of help 
from taxpayers. They were given special dispensation to 
overdraw their accounts at the Federal Reserve if they needed a 
little help. Now in return, the regulators asked the banks, 
please do the same thing for your customers.
    So last year, I asked the CEOs of the four biggest banks, 
JPMorgan Chase, Wells Fargo, Bank of America, and Citi whether 
they had followed through and automatically waived overdraft 
fees during the pandemic. Not one of them raised their hand. In 
fact, in 2020, they collected more than $4 billion in overdraft 
fees from families.
    So I asked them, would they return the money? And you 
guessed it. The CEOs had nothing to say.
    But over the last few months there has been a, quote, race 
to the top, and some of these banks, like Citi and Capital One, 
eliminated overdraft fees altogether.
    Mr. Klein, you are an expert on the overdraft system and 
banks' reliance on these fees. Three of the Nation's biggest 
banks--JPMorgan Chase, Bank of America, and Wells Fargo--still 
have not eliminated overdraft fees. So can you give us an idea? 
How much money are they raking in from these fees every year?
    Mr. Klein. Senator Warren, they are making billions. In 
2019, before the pandemic, JPMorgan Chase earned over $2 
billion in overdraft fees; Wells Fargo, about 1.7; and Bank of 
America, a bit over 1.5. Together, they earned $5.25 billion. 
Those figures declined, along with the entire industry, as a 
result of pandemic assistance authored by this Congress and the 
one before it. But even then, in 2021, overdraft--each of those 
banks were making more than a billion dollars a year in 
overdraft fees, and overdraft fees are basically pure profit 
for banks.
    Senator Warren. OK. So we got that end of it, the banking 
end. Over a billion dollars for each one of these giant banks.
    So let us look at the other end. Who are the consumers who 
are shelling out the billions of dollars to these banks? Well, 
according to the CFPB, 80 percent of all overdraft and 
nonsufficient funds fees are paid not by everyone but by only 
about 9 percent of account holders and these families have an 
average balance of less than $350. According to Pew, they are 
also disproportionately Black and Hispanic Americans who make, 
on average, less than $50,000 a year. In other words, people 
working hard to try to make it from here to the end of the 
month.
    So JPMorgan Chase, Bank of America, and Wells Fargo are 
collecting billions of dollars in overdraft fees from 
struggling families every year.
    Mr. Klein, what would happen to these banks if they just 
stopped collecting overdraft fees? Would they go out of 
business? Would they stumble and teeter and just fall off the 
profitability line?
    Mr. Klein. They would be fine, Senator. Overdraft fees are 
a small share of these institutions' profits. Last year, they 
were about 3 percent for JPMorgan, 4 percent for Bank of 
America, slightly higher for Wells.
    My research indicates that, broadly speaking, the less 
overdraft was a share of bank profit the more the bank is 
willing to adopt changes that reduce overdraft revenues, like 
Citibank, who never really tried to maximize overdraft from its 
customers and for years managed to be highly profitable without 
leaning on people living paycheck to paycheck.
    This one idea that industry actions alone will fix the 
overdraft problem is flawed. Senator, there are some entities 
with the apparent blessing of their regulators that are 
functionally not banks or credit unions, that earn 100 percent 
or more of their profits just on overdraft fees alone. These 
are not banks. These are check cashers and payday lenders with 
a banking charter.
    Senator Warren. Yeah. Well, you know, Chase, Bank of 
America, and Wells Fargo are making tens of billions of dollars 
in profits, and yet, they are still squeezing families on 
overdraft fees. If Citibank and Capital One can eliminate 
overdraft fees, so can Chase and B of A and Wells.
    And that is why earlier today, along with Senator Booker 
and Representative Carolyn Maloney, we sent letters to the CEOs 
of JPMorgan Chase, Bank of America, and Wells Fargo, urging 
them to end overdraft fees, and by the way, there are 18 State 
attorneys general who also agree with us on this.
    But we should not sit around and wait for banks to do the 
right thing. Congress should pass my and Senator Booker's Stop 
Overdraft Profiteering Act, which would crack down on 
exploitive overdraft fees and practices. I also want to do one 
more. The OCC could step in. They have the power to eliminate 
these fees. Instead of working for the biggest banks, it is 
time for Government to work on the side of working families.
    So once again, thank you, Mr. Chairman, for putting this 
hearing together. I hope we get some action that helps the 
families who need it.
    Chair Warnock. Well, thank you so much, Ms. Warren. And 
that is the purpose of this hearing, to shine a bright light on 
this issue. Glad to see some of the progress that we are seeing 
with some of the banks, but it is also proof positive that 
others could move in the right direction.
    And with that, all questioning has concluded. Thank you to 
all of our witnesses for being with us today.
    This hearing highlights how Congress is focusing on 
lowering costs for the American people and how important our 
Nation's financial institutions are in helping families and 
small businesses and communities to thrive. There is a 
difference between offering a service that will lend a hand and 
offering a service that will kick someone while they are down.
    In March, I joined Chairman Brown in leading a letter, with 
our colleagues, to the largest banks in the country that have 
yet to make meaningful progress on alleviating overdraft fees 
for their customers, and I have also prepared a report that my 
office will be releasing soon based on their responses and 
responses to the CFPB's request for public input on junk fees. 
The report will illustrate the gap between how industry views 
these services and fees and how the public perceives them.
    Lowering onerous fees is something I will keep pushing for 
through collaborating with financial institutions and, when 
necessary, through legislation and working with regulators to 
stop bad actors from taking advantage of hardworking Americans 
and the most vulnerable struggling families. This topic is 
about saving people money, creating a viable economy that works 
for all Americans, and ensuring hardworking families are not 
swindled out of a shot at financial stability.
    For Senators who wish to submit questions for the record, 
those questions are due 1 week from today. For our witnesses, 
you will have 45 days to respond to any questions.
    Thank you all again.
    And with that, this hearing is adjourned.
    [Whereupon, at 3:39 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                   PREPARED STATEMENT OF AARON KLEIN
        Senior Fellow in Economic Studies, Brookings Institution
                              May 4, 2022
    Chairman Warnock, Ranking Member Tillis, thank you for holding this 
timely hearing examining the impacts of overdraft fees. \1\ Overdraft 
fees, developed as a convenience service for occasional instances when 
a consumer ran out of funds, morphed into a cottage industry with 
estimates of total fees paid by consumers ranging up to more than $30 
billion a year. By definition, every overdraft fee is paid by a person 
who has run out of money while trying to live their life. These fees, 
which are effectively short-term loans, can be extremely high-cost 
relative to the small amount of money received by the customer, short-
lived in time borrowed, and carry small chance of default. As a result, 
overdraft fees result in nearly pure profit for the bank or credit 
union. No wonder one bank CEO named his yacht ``Overdraft.''
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     \1\ The views expressed are my own and do not necessarily reflect 
the views of other staff members, officers, or Trustees of the 
Brookings Institution.
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    After decades of racking up major profits off of American families 
living paycheck to paycheck, many banks, including most of America's 
largest banks, have announced sweeping changes to their overdraft 
policies. These changes will sharply reduce costs for their customers. 
Savings will go directly to people living on the financial edge and 
come directly out of bank profits. The result will be a more equal and 
just financial system and a significant dent in the high costs of being 
poor. By my calculations, the combined savings for consumers from 
overdraft changes already announced will be approximately $5 billion a 
year. Even by Washington standards, that's real money.
    Industry made these sweeping changes without any new legislation or 
new regulation. I commend these banks for their actions. They are doing 
the right thing for their customers, which will also reduce income 
inequality and, over time, reduce the number of unbanked households in 
America.
    However, as my testimony will show, the difference in the actions 
taken by banks varies substantially, and some institutions' changes are 
more meaningful than others. Critically, a handful of banks have become 
dependent on overdraft for the majority--and in some instances 
totality--of their profit. These overdraft giants cannot structurally 
walk away from overdraft nor will they. Regulators have long been 
asleep at the switch in allowing these institutions to operate like 
this. New regulation is still needed on the basis of safety and 
soundness to address any bank or credit union that relies on overdraft 
for the majority of their profit.
    My testimony will focus on three main points:

  1.  Understanding overdrafts and why some institutions are making 
        changes.

  2.  Examining changes in overdraft policies to elucidate the problems 
        and paths to solutions for families living paycheck to 
        paycheck.

  3.  Additional policy solutions to address both remaining problems in 
        overdraft and the broader root causes that have led America to 
        be a Nation where the less money you have, the more money it 
        costs you to deal with your money.
Understanding Overdraft
    Overdraft fees are major profit centers for banks and credit 
unions, with estimates ranging from roughly $15 billion a year for 
banks alone \2\ to over $30 billion a year for banks and credit unions. 
\3\ Overdraft fee income peaked in 2019 as pandemic assistance and 
other Covid-related factors reduced overdraft revenue across the board 
for almost every institution. \4\ While overdraft revenue rebounded in 
2021 as pandemic assistance subsided, other changes have taken place 
that will likely make 2019 the highwater mark for overdraft revenue.
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     \2\ Consumer Financial Protection Bureau. ``CFPB Research Shows 
Banks' Deep Dependence on Overdraft Fees''. December 1, 2021. https://
www.consumerfinance.gov/about-us/newsroom/cfpb-research-shows-banks-
deep-dependence-on-overdraft-fees/
     \3\ Nova, Annie. ``Banks Will Collect More Than $30 Billion in 
Overdraft Fees This Year. Here's How To Avoid Them''. CNBC, December 1, 
2020. https://www.cnbc.com/2020/12/01/banks-will-get-30b-in-overdraft-
fees-this-year-heres-how-to-avoid-them-.html
     \4\ Fox, Zach, and Ronamil Portes. ``Overdraft Fees Jump 40 
Percent YOY but Still Headed Lower From 2019 Levels''. S&P Global, 
August 25, 2021. https://www.spglobal.com/marketintelligence/en/news-
insights/latest-news-headlines/overdraft-fees-jump-40-yoy-but-still-
headed-lower-from-2019-levels-66207671
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    Among those other changes has been the entry of a growing number of 
financial technology firms (fintechs) partnering with banks to provide 
basic banking services to consumers. Many of these products do not 
allow for traditional overdraft fees. The lack of overdraft fees is 
often figured prominently in their marketing, a sign that consumers 
would be attracted to non-overdraft banking. \5\ The growth of fintechs 
probably played a role in motivating some banks to change their 
overdraft policy.
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     \5\ Chime. ``Overdraft With No Fees''. https://www.chime.com/
spotme/
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    The key to understanding overdraft is that a small number of 
customers account for the vast majority of overdrafts: 80 percent of 
overdraft fees come from 9 percent of account holders. The same data 
shows that one out of every 12 banked customers had ten or more 
overdrafts a year, paying on average $380 a year in overdraft fees. \6\ 
For a person earning $38,000 a year, that is 1 percent of their annual 
income spent in overdraft fees alone!
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     \6\ Bakker, Trevor, Nicole Kelly, Jesse Leary, and Eva Nagypal. 
``Data Point: Checking Account Overdraft''. Consumer Financial 
Protection Bureau, July 2014. https://files.consumerfinance.gov/f/
201407-cfpb-report-data-point-overdrafts.pdf
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    Heavy overdrafters are highly profitable customers, often producing 
more profit than customers with more money in their account who manage 
to not overdraw. For some banks, this makes them a desirable customer 
set, so much so that a small number of banks have decided to specialize 
in attracting these customers and maximizing their overdrafts, a point 
I will get to later in my testimony.
    Another note on heavy overdrafters involves debit cards and 
regulation. Heavy overdrafters are likely to be heavy debit card users, 
as payment form and income are highly correlated. \7\ As a result of 
the compromise worked out during debate and passage of the Durbin 
Amendment to the Dodd-Frank Act in 2010, small banks were essentially 
given the ability to have a higher interchange fee on certain debit 
card transactions relative to larger banks.\8\ \9\ When a fintech 
partners with a small bank, they are able to earn the higher 
interchange fee. This partnership is structurally able to generate more 
revenue off debit card users than larger banks for the same activity. 
Thus, fintechs can make more profit from the regular payments made by 
overdraft-prone customers than larger banks.
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     \7\ Klein, Aaron. ``How Credit Card Companies Reward the Rich and 
Punish the Rest of Us''. L.A. Times, December 20, 2019. https://
www.latimes.com/opinion/story/2019-12-20/opinion-how-credit-card-
companies-reward-the-rich-and-punish-the-rest-of-us
     \8\ 111th Congress. 15 U.S.C. 1693o-2, ``Reasonable Fees and 
Rules for Payment Card Transactions''.
     \9\ Hopkins, Cheyenne. ``Tester Touts Bill To Delay Interchange 
Fee Limits''. American Banker, April 14, 2011. https://
www.americanbanker.com/news/tester-touts-bill-to-delay-interchange-fee-
limits
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    A final point on heavy overdrafters: for them, basic banking is 
expensive. The result is that many leave the banking system. As a 
recent Consumer Finance Protection Bureau (CFPB) note was titled: 
``Overdraft Fees Can Price People Out of Banking''. \10\ While being 
unbanked is costly, there are times when nonbank services are actually 
cheaper than banks. In fact, the high costs of banking is the number 
one reason why people leave the banking system according to the Federal 
Deposit Insurance Corporation (FDIC). \11\ Fixing the overdraft problem 
is one of the most important things that can be done to help address 
problems of the un- and under-banked.
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     \10\ Valenti, Joe. ``Overdraft Fees Can Price People Out of 
Banking''. Consumer Finance, March 30, 2022. https://
www.consumerfinance.gov/about-us/blog/overdraft-fees-can-price-people-
out-of-banking/
     \11\ Kutzbach, Mark, Alicia Lloro, Jeffrey Weinstein, and Karyen 
Chu. ``How America Banks: Household Use of Banking and Financial 
Services''. Federal Deposit Insurance Corporation, October 2020. 
https://www.fdic.gov/analysis/household-survey/2019execsum.pdf
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    Overdraft fees vary substantially between banks. Banks have 
structured their overdraft products very differently. As a result, 
overdraft revenue varies substantially among banks, including among the 
largest banks. \12\ To compare banks by overdraft revenue, I analyze 
their overdraft revenue per consumer nonretirement deposit account. 
\13\ This helps control for differences between banks by size while 
focusing on their consumer account footprint. It elucidates the 
substantial divergence in overdraft revenue, as some banks generate 
overdraft of more than seven times other banks. It is hard to imagine 
that among the Nation's largest banks the variation in their share of 
heavy overdrafters is this drastic. Hence, there must be other 
practices and products offered by these banks that allow some to 
generate so much more overdraft revenue per customer than others. These 
include how reordering payments by size, posting debits before credits, 
and whether to allow overdrafts in certain instances like at ATMs.
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     \12\ Baker, Todd H., and Corey Stone. ``Making Outcomes Matter: An 
Immodest Proposal for a New Consumer Financial Regulatory Paradigm''. 
SSRN, May 21, 2020. https://papers.ssrn.com/sol3/papers.cfm?abstract-
id=3607308
     \13\ Author's calculation using FFEIC data. While FFEIC data is 
governmental data filed by banks there may be some banks that have 
certain types of consumer nonretirement deposit accounts that are 
structurally different and less likely to overdraft. Note that Truist's 
merger in late 2019 required some additional calculations.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    A small number of small banks are overdraft giants. On a per 
customer basis, a handful of smaller banks generate overdraft revenue 
dwarfing the largest banks. These banks target heavy overdraft 
customers and seek to maximize revenue from them. For example, 
Woodforest branch in Atlanta is located in the Walmart Supercenter on 
Gresham Road, SE, while Armed Services Bank targets customers located 
primarily on military bases such as its operations on Moody Air Force 
Base in Georgia. Compare the overdraft revenue per customer these banks 
generate: often more than $100 per account each year, more than five 
times the average of America's five largest banks. Because their 
overdraft revenue per customer is higher they account for a 
disproportionate amount of total overdraft. Woodforest National Bank 
actually generates more overdraft revenue per year than Citibank.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    These banks have no business model besides overdraft. First 
National Bank of Texas has made more than 100 percent of its profit on 
overdraft in each of the last 7 years (that's as long as overdraft data 
have been separately reported). For Woodforest and Gate City, that has 
been true in six of the last seven. Armed Forces Bank has made more 
than 75 percent of its profit on overdraft for each of the last 7 years 
(and over 100 percent for three of the seven). Academy Bank made more 
than 100 percent of its profit in overdraft fees for 4 straight years 
from 2017-2020. I group Armed Forces and Academy Bank together because 
they are part of the same holding company: Dickenson Financial Company. 
This holding company's strategy appears to be based on overdraft. The 
Federal Reserve regulates that holding company, while the Office of the 
Comptroller of the Currency (OCC) regulates these banks, which are 
nationally chartered banks. There may be more overdraft giants among 
the banks regulated by the FDIC and National Credit Union 
Administration (NCUA), as banks under $1 billion and all credit unions 
are exempt from publicly disclosing their overdraft revenue. Regulators 
have been asleep at the switch in allowing these banks to operate in 
what are clearly unsafe and unsound business models, as they have been 
losing money every year on all other aspects of banking other than 
overdraft.
    Shining the spotlight. The divergence in bank practices has gotten 
the attention of policymakers, media, and bank executives. Members of 
Congress, including several on this Committee, publicly engaged with 
bank CEOs, \14\ regulators, \15\ and the media, \16\ raising questions 
about outlier banks. Academics, consumer advocacy groups, and reporters 
began digging in. This public pressure is part of the reason, I 
believe, why some banks have decided the overdraft business is simply 
not worth it. As some institutions began making pro-consumer changes, 
the pressure increased for others. The industry started to move. As 
Acting Comptroller Hsu put it in a speech a few months ago before the 
American Bankers Association, ``You don't want to be the last bank that 
still has a traditional overdraft program.'' \17\ Words like that from 
regulators have meaning, even if they do not yet have a regulation 
behind them.
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     \14\ Bloomberg. ``JPMorgan's Dimon Clashes With Warren Over 
Overdraft Fees''. May 26, 2021. https://www.bloomberg.com/news/videos/
2021-05-26/jpmorgan-s-dimon-clashes-with-warren-over-overdraft-fees-
video
     \15\ Office of the Comptroller of the Currency. ``Acting 
Comptroller Michael J. Hsu Remarks Before the Consumer Federation of 
America's 34th Annual Financial Services Conference''. December 8, 
2021. https://www.occ.gov/news-issuances/speeches/2021/pub-speech-2021-
129.pdf
     \16\ CNBC Television. ``Sen. Elizabeth Warren on JPMorgan CEO 
Jamie Dimon's Testimony.'' YouTube, May 26, 2021. https://
www.youtube.com/watch?v=DT4ojj-spoY&ab-channel=CNBCTelevision
     \17\ American Banking Journal. ``OCC's Hsu: `You Don't Want To Be 
Last' To Offer Traditional Overdraft Programs''. March 9, 2022. https:/
/bankingjournal.aba.com/2022/03/occs-hsu-you-dont-want-to-be-last-to-
offer-traditional-overdraft-programs/
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Overdraft Changes
    Most of the Nation's largest banks and many smaller ones have 
announced changes in their overdraft policy. Several eliminated the 
product all together. Others instituted a set of changes designed to 
reduce the number of overdrafts their customers experience. How banks 
are reducing overdrafts shed significant light on the factors that 
drove overdraft in the first place. The changes taken can be 
categorized into four buckets. Each bucket is a type of change that 
highlights a different aspect of the overdraft problem and how it can 
be solved. The four buckets are:

  1.  Reducing fees

  2.  Changing time

  3.  Providing small dollar liquidity in different forms

  4.  Consumer empowerment

    Before turning to each bucket, several top line observations. 
Generally speaking, the less a bank relied on overdraft for revenue the 
more likely they were to eliminate the product or cut fees by the 
largest amount. Citibank and Capital One eliminated the product 
entirely. While Bank of America did not eliminate overdraft, it pledged 
to cut total overdraft revenue by 97 percent (although from a different 
baseline). \18\ On the other end the changes announced by Regions and 
Citizens Banks will reduce their overdraft revenue by only 23 and 28 
percent respectively, despite each starting from a higher base. \19\
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     \18\ Bank of America. ``Bank of America Announces Sweeping Changes 
to Overdraft Services in 2022, Including Eliminating Non-Sufficient 
Funds Fees and Reducing Overdraft Fees''. January 11, 2022. https://
newsroom.bankofamerica.com/content/newsroom/press-releases/2022/01/
bank-of-america-announces-sweeping-changes-to-overdraft-services.html
     \19\ Kline, Allissa. ``Truist Joins Industry's Pivot Away From 
Overdraft Fees''. American Banker, January 18, 2022. https://
www.americanbanker.com/news/truist-joins-industrys-pivot-away-from-
overdraft-fees
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    Overall savings from this subset of fourteen banks that have made 
changed overdraft policies is around $5 billion a year. \20\ If these 
savings were distributed evenly across the country, on a per capita 
basis, a State like Georgia would expect savings of $162 million a 
year. This estimate is derived from various bank public statements 
regarding their expectations of reduced overdraft fees coupled with 
estimates based on announced policy changes for banks where I was 
unable to find public statements regarding expected revenue lost. It 
includes the largest banks plus several others who made announcements 
and for which I was able to find data. \21\
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     \20\ The banks included in this analysis are: JPMC, BoA, Wells 
Fargo, Citibank, USBank, Truist, PNC, Capital One, USAA, TD Bank, 
Regions, Citizens, Ally, and Frost. All sources are cited in the 
author's calculations.
     \21\ Sources for the overdraft revenue reductions include 
conversations with individual banks and the following publications: 
https://www.americanbanker.com/news/truist-joins-industrys-pivot-away-
from-overdraft-fees; https://www.capitalone.com/about/newsroom/
eliminating-overdraft-fees/https://seekingalpha.com/news/3789183-
regions-bank-is-the-latest-to-cut-overdraft-fees-to-keep-attract-
customers
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    The savings are estimated from the 2019 base-year, given the 
pandemic-related changes in overdraft revenue described earlier that 
began in 2020, coupled with the reality that some banks who were early 
announcers of overdraft policies have already seen revenue changes. 
This estimate is more inclusive of than the CFPB's estimate of the 
savings from banks eliminating nonsufficient funds fees (NSF) which 
they estimated will save consumers $1 billion alone. \22\ It also 
includes institutions that have made announcements since an earlier 
estimate by Pew which found potential savings of $2 billion a year 
based on changes from only the five largest banks. \23\ This estimate 
does not include the potential offsetting costs borne by consumers who 
end up in small dollar loans instead of being charged overdrafts. Those 
interest costs will offset some of these savings and should be 
monitored as these new small dollar loan alternatives are rolled out.
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     \22\ Borne, Rebecca, and Ashwin Vasan. ``Consumers on Course To 
Save $1 Billion in NSF Fees Annually, But Some Banks Continue To Charge 
These Fees''. Consumer Financial Protection Bureau, April 13, 2022. 
https://www.consumerfinance.gov/about-us/blog/consumers-on-course-to-
save-one-billion-in-nsf-fees-annually-but-some-banks-continue-to-
charge-them/
#:text=In%20recent%20months%2C%20a%20number%savings%20of%20about%20%241%
20billion
     \23\ Horowitz, Alex, and Linlin Liang. ``America's Largest Banks 
Make Major Overdraft Changes That Will Help Consumers''. Pew Research, 
February 8, 2022. https://www.pewtrusts.org/en/research-and-analysis/
articles/2022/02/08/americas-largest-banks-make-major-overdraft-
changes-that-will-help-consumers
---------------------------------------------------------------------------
    For the banks examined, policy changes already announced average 
out to a reduction of just below 60 percent of total 2019 overdraft 
revenue, although they vary significantly between financial 
institutions. Several institutions that have made relatively small 
changes to reduce overdraft fees will appear even larger outliers 
relative to their peer group in coming years. Policymakers, regulators, 
and the media should continue to carefully analyze overdraft policies 
as not all changes will have the same impact.
    If every bank and credit union made changes along this industry 
average, savings for consumers would exceed $17 billion, based on the 
Moebs estimate of $30 billion in total overdraft charges in 2019. 
However, as noted above, that is unlikely absent regulatory or legal 
changes given how dependent some institutions are on overdraft for 
their business. Thus, while industry actions to date constitute a major 
win for many working families--after all, the majority of people in 
America have an account with a bank that has changed its policies--much 
more can be done.
Reducing Fees
    Among actions banks and credit unions can take to benefit 
consumers, lowering the costs of overdraft is the most straightforward 
and impactful. Overdrafts had generally been priced at about $35 each, 
with institutions setting a maximum number of daily overdrafts (often 
between four and eight). Many institutions charged a nonsufficient 
funds fee (NSF) when certain payments could not be covered by the funds 
in a consumer's account. NSF fees tended to be around the same size as 
overdraft fees.
    Changes observed: Most of the largest financial institutions have 
eliminated NSF fees entirely. \24\ Some institutions have reduced the 
$35 fee; notably Bank of America lowered it to $10, M&T to $15. This 
has eliminated part of the punitive penalty aspect of the fee and is 
one reason why Bank of America expects such a substantial decline in 
total overdraft revenue. Some have also reduced the maximum number of 
overdraft fees charged per day.
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     \24\ Horowitz, Alex, and Linlin Liang. ``America's Largest Banks 
Make Major Overdraft Changes That Will Help Consumers''. Pew Research, 
February 8, 2022. https://www.pewtrusts.org/en/research-and-analysis/
articles/2022/02/08/americas-largest-banks-make-major-overdraft-
changes-that-will-help-consumers
---------------------------------------------------------------------------
    These changes are straightforward and will reduce the cost borne by 
consumers. Elimination of NSF fees is particularly important as these 
were sometimes a double whammy, hitting a consumer on top of the 
overdraft fee, making the true cost of a negative balance event greater 
than $35.
    Insight revealed: Overdraft fees do not reflect the cost to the 
financial institution of providing overdraft coverage. The fee was 
often designed to have a punitive element to discourage consumers from 
going negative. \25\ Charging penalty fees for overdrafts may have been 
designed at one point to reduce frequency, but given the illiquid 
nature of the customer at the moment they run out of money, it became a 
way to generate more profit for a financial institution. Given the high 
cost of alternative small dollar credit and the consumers' frequent 
lack of awareness that they were even overdrafting, the fee was able to 
stay quite high.
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     \25\ United States Senate Committee on Banking, Housing and Urban 
Affairs. ``Testimony of Michael Calhoun, Center for Responsible 
Lending''. November 17, 2009. https://www.banking.senate.gov/imo/media/
doc/CalhounTestimony111709.pdf
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Changing Time
    Overdraft is as much or more about running out of time than out of 
money. The reason people go negative in their bank account temporarily 
has a lot to do with the mismatch in time between when they have access 
to their money and when their payments are debited from their account. 
They are often minutes, hours, or days away from having the money 
necessary to cover the overage. In addition, some customers have 
positive balances able to cover the cost when they make a purchase, but 
because of the time delay in settlement, other payments have been 
processed before this purchase. This results in a ``positive when made, 
negative when settled'' scenario in which a consumer was shown that 
they had the money in their account when the payment began but ended up 
being charged an overdraft.
    These problems are exacerbated by America's antiquated payment 
system, which still runs on technology that is decades old. In this 
system, payments are often credited and debited in batches rather than 
individually when they occur. A batch system is analogous to a washing 
machine in which all the clothes go in together, regardless of when 
they were soiled, and come out clean at the same time. The person doing 
the laundry then decides when to fold and return the clean clothes, 
much like the bank has some discretion on which order to post the 
various debits and credits that come through the payment cycle.
    Changes observed: Many banks have created grace periods where 
consumers who cure an overdraft within 24 to 48 hours or more are not 
charged a fee (PNC, Wells Fargo). In addition, many banks have moved up 
consumers' payday, crediting accounts with direct deposit up to 2 days 
earlier (Capital One, Regions). This is a valuable service to customers 
because direct deposit is not instant. Typically, a direct deposit that 
is withdrawn from a business on Tuesday does not become available to 
the worker until Friday. Banks with direct deposit relationships often 
know the amount of money their customer will receive and are able to 
provide access to those funds earlier. Some banks have also eliminated 
any overdraft fees incurred if a charge was made when the account had 
funds but settled negative (JPMC).
    Insight revealed: Time is money. The provision of extra time has 
had a substantial impact. PNC, which was among the first banks to 
change overdraft fees, has been able to collect some data from their 
changes which they term ``Low Cash Mode.'' 63 percent of PNC customers 
who end the day with a negative balance are able to fix the problem and 
avoid an overdraft. \26\ The average time to cure is only 13 hours, 
evidence that the majority of their customers' problems are very short-
term mismatches. From PNC's experience, 75 percent of reduction in fees 
was the result of extra time and the change on the limit on total 
overdrafts. The remaining 25 percent of savings came from the 
elimination of NSF fees.
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     \26\ Data provided to the author, available upon request.
---------------------------------------------------------------------------
    Overdraft fees are driven in large part by short temporal 
mismatches in income flows. The provision of short time windows to cure 
is very impactful. This helps explain the popularity of early wage 
access and other faster payment options spreading through the banking 
and fintech systems. It also makes clear the incredibly high cost of 
our Nation's slow payment system born by American families living 
paycheck to paycheck. The failure of the Federal Reserve to speed up 
our payment system has taken billions out of the pockets of working 
families and stuffed it in the bottom line of banks, credit unions, 
check cashers, and payday lenders. \27\ Faster payments ought to be 
among our top priorities.
---------------------------------------------------------------------------
     \27\ Klein, Aaron. ``Why Don't Checks Clear Instantly? Ask the 
Fed''. Politico, September 28, 2016. https://www.politico.com/agenda/
story/2016/09/financial-technology-payment-transactions-federal-
reserve-000209/
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Small Dollar Liquidity in Different Forms
    Economically, overdraft is a form of small dollar credit. Charging 
a fixed price instead of an interest rate does not change that basic 
fact. Legal and regulatory structures deemed overdraft a fee instead of 
a loan, avoiding a set of legal requirements like Truth in Lending that 
requires disclosures, including the annual percentage interest rate 
(APR). APR's for overdrafts may or may not be useful concepts, but they 
would appear astronomical for covering a tiny overdraft, as one story 
reports $100 overdraft fees for covering an overdraft of 2 cents. \28\
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     \28\ Lieber, Dave. ``Why Are Some Big Banks Getting Rid of 
Bounced-and-Check and Overdraft Fees?'' The Dallas Morning News, 
February 17, 2022. https://www.dallasnews.com/news/watchdog/2022/02/17/
why-are-some-big-banks-getting-rid-of-bounced-check-and-overdraft-fees/
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    The differentiation between a fee and a loan is important for legal 
purposes, but economically the concept of a financial institution 
providing money to a consumer and in exchange being repaid in the 
future is the same. This is the provision of credit. How that credit is 
priced can be spliced in different forms. In the case of overdraft, 
which is almost always relatively small dollar amounts paid back 
quickly, a representation of costs over the time horizon of a year will 
would be equivalent to mammoth APR rates.
    Changes Observed: Most banks making changes in policies have 
increased the amount a consumer can go negative without incurring a 
fee. Many have raised their limits from $5 to $50 (US Bank, Huntington, 
TD, and JPMC) while some have gone as high as $100 (Truist and Frost 
Bank).
    Another common change has been automatically converting negative 
balances into installment loans rather than charging a fee. These loans 
typically have a fixed charge for the amount borrowed. US Bank started 
a similar product (Simple Loan) earlier that now charges $6 per $100 
borrowed. The loans typically last a few months and are paid back in 
even, amortizing payments. Institutions typically make repayment 
automatic but say they will not take such payment if it then causes a 
new overdraft.
    Insight Revealed: Heavy overdrafters go negative many times 
throughout the year. Solutions require standing facilities of small 
dollar credit that meet their needs. Increasing the ``grace zone'' of 
negative balances without any costs is a major win for consumers. It 
also recognizes the reality that for people living near the zero lower 
balance of their bank account it can be impossible to know exactly how 
much money you have in your account and when your debits and credits 
will clear.
    Changing from a fee-per-transaction when a customer's balance is 
negative into one loan where costs are based on amount borrowed, not 
number of transactions, is another win for consumers. Frankly, it may 
be a more fair product for the lender as well, as the costs/risks of 
default are related to the total amount, not the number of 
transactions.
    Simple fees based on amount borrowed are easier to understand and 
consider for consumers. Separating the cost from the time horizon of 
the loan is also different from traditional loans with fixed interest 
rates on outstanding balances. Fees on the order of 5 percent of amount 
borrowed are substantially lower than most alternatives available to 
heavy overdrafters for small dollar credit. However, fees on the order 
of 10 percent or higher can reach high costs if the funds are repaid 
quickly. For example, $10 to borrow $100 that is paid back over 6 weeks 
approaches a 100 percent APR.
    Total savings to consumers from changes to overdraft fees may be 
somewhat offset by interest and other costs of small dollar lending. 
No-cost temporary negative balances are different than interest-bearing 
loans. Both can be beneficial for consumers, but a full accounting of 
total savings from overdraft fee changes should include the 
corresponding costs associated with small dollar credit products that 
are being rolled out as alternatives to overdraft.
Consumer Empowerment
    People do not know how much money is in their bank account or when 
exactly payments are being made, and even if they do they may lack the 
ability to stop automatic payments. Providing consumers increased 
knowledge of their situation and the ability to decide whether to stop 
or delay an automatic payment would empower consumers to decide whether 
the ``overdraft was worth it.''
    Changes observed: Many banks have developed sophisticated systems 
designed to alert consumers of low balances and provide the ability to 
delay or stop payments (PNC, TD). Some of these systems provide 
proactive alerts to customers when their balance reaches a threshold 
(``$50 left in your account'') while others indicate an automatic 
payment is coming that would create an overdraft. Consumers can then 
use this information to decide how to manage their finances and 
potentially avoid an overdraft.
    Insight revealed: Knowledge is power. Consumers should know their 
bank balance and have the ability to decide whether an overdraft fee is 
worth the consequences of not making the automatic payment. However, 
cancelling an automatic payment may itself result in fees and charges 
from the other entity (late fees, NSF fees for attempting to get paid, 
delinquency notifications for credit reports, etc.). Banks making 
changes to their policies cannot be responsible for how the other party 
will respond. Consumers may not know that either.
    While consumer empowerment sounds good, it is not as impactful. PNC 
estimates that only about 1 percent of payments were cancelled or 
delayed by customers receiving this alert. This may be evidence that 
customers want these payments to move forward regardless of overdraft 
consequences or that they know they will have enough money to cover the 
payment given that PNC's new product allows extra time to cure the 
overdraft. It is hard to know how many of the consumer alerts sent 
resulted in changed behavior without a complicated control group-style 
experiment.
    It is hard to argue against providing consumers more information. 
However, information without the ability to fix a problem is often 
insufficient. The problem people living on the financial edge face with 
overdraft is more likely a combination of temporal mismatches of money 
and the high cost of small dollar credit than it is about knowing that 
they are near the edge. Data from the Financial Diaries Project and 
others indicate that people living paycheck to paycheck may be more 
likely to budget and be aware of their finances than those who are 
comfortably upper middle class. \29\ However, when you do not know the 
exact moment your paycheck will hit your bank account or when a payment 
will be taken out it is impossible to budget or plan in a way to avoid 
fees.
---------------------------------------------------------------------------
     \29\ Morduch, Jonathan, and Rachel Schneider. ``The Financial 
Diaries: How American Families Cope in a World of Uncertainty''. 
Princeton University Press, 2019.
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Policy Solutions
    Many banks have made great strides to reduce overdraft fees, some 
more impactful than others. These banks' excellent decisions do not 
eliminate the need for structural policy changes. Here are five policy 
changes still needed to address ongoing overdraft problems that harm 
working families.
    1. Stopping overdraft giants with safety and soundness regulation. 
A small number of banks and credit unions depend on overdrafts for a 
majority, or in a few instances, totality of their profits. That 
regulators consider it safe and sound for banks and credit unions to 
base their business model on overdraft, a product charged only to their 
most financially vulnerable customers, is a dereliction of duty. 
Regulators should immediately revise their rules. Any institution that 
relies on overdraft fees for a majority of their profits for multiple 
consecutive years should be given failing regulatory grades, a position 
the Washington Post editorial board has echoed.
    2. Credit unions should disclose overdraft data just like banks. 
Currently all banks over $1 billion in size must file information in 
their call reports listing various consumer fees, including overdraft 
fees. \30\ These items in Schedule RI, line 15, form the basis of the 
data I and others have used to highlight trends in industry, identify 
troubling practices and overdraft dependent institutions, and encourage 
the banking industry to reform. Credit unions are exempt from this 
requirement. As such, even the Nation's largest credit unions with tens 
of billions in assets do not file this information publicly. No one 
knows which credit unions are overdraft giants or are engaged in 
practices harming their customers, although the data described above 
and a few lawsuits have revealed there are problems. \31\ Credit unions 
should report this data publicly, just like banks of similar size.
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     \30\ Federal Financial Institutions Examination Council. ``FFIEC 
031 and FFIEC 041 Call Report''. December 29, 2014. https://
www.ffiec.gov/pdf/ffiec-forms/FFIEC031-FFIEC041-20141229-fi-draft.pdf
     \31\ Tompor, Susan. ``2 Big Michigan Credit Unions Hit With 
Lawsuits Regarding Overdraft Policies''. Detroit Free Press, September 
17, 2017. https://www.freep.com/story/money/personal-finance/susan-
tompor/2017/09/17/overdraft-fees-class-action-credit-unions/401149001/
---------------------------------------------------------------------------
    3. Real-time payments. As Treasury Secretary Yellen recently 
stated, America's slow payment system ``contributes to the use of high-
cost check cashers or `pay day' lenders to get their money in time to 
pay their bills. Some are forced to draw against already low balances 
and are charged overdraft fees.'' \32\ She was right to draw this link. 
My research, using FDIC data, makes clear that 70 percent of people 
using check cashers have bank accounts. \33\ The problem Americans face 
is that the check takes too darn long to clear!
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     \32\ United States Department of the Treasury. ``Remarks from 
Secretary of the Treasury Janet L. Yellen on Digital Assets'', April 7, 
2022. https://home.treasury.gov/news/press-releases/jy0706
     \33\ Klein, Aaron. ``Can Fintech Improve Health?'' The Brookings 
Institution, September, 2021. https://www.brookings.edu/research/can-
fintech-improve-health/
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    Voluntary decisions by some institutions to offer new programs--
including faster access to certain types of payments (generally direct 
deposit wages) and 24 to 48 hours to cure negative balances--and a 
growing industry providing early wage access have all helped millions 
of American families avoid expensive overdrafts and other fees. That 
some banks and fintechs help their customers with these services only 
underscores the importance and power of broader payments reform. If a 
subset of banks moving a subset of payments faster can result in 
billions of dollars saved by families living paycheck to paycheck, 
consider the impact of a full transition to real-time payments.
    The solution is real-time payments. The Federal Reserve could solve 
this problem today using the regulatory authority given to it under the 
Expedited Funds Availability Act. \34\ But the Fed has not moved even 
though Congress was explicit in requiring that the Fed ``shall, by 
regulation, reduce the time periods established under subsections (b), 
(c), and (e) to as short a time as possible''. Absent Fed action, 
legislation is needed. Previously proposed legislation introduced in 
the Senate by two leading Members of this Committee, Senators Van 
Hollen and Warren would solve this problem. \35\
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     \34\ Klein, Aaron. Open letter to Ann Misback, Secretary of the 
Board of Governors of the Federal Reserve System. The Federal Reserve, 
December 14, 2018. https://www.federalreserve.gov/SECRS/2018/December/
20181221/OP-1625/OP-1625-121418-133277-428769914666-1.pdf
     \35\ 116th Congress. Payment Modernization Act of 2019.
---------------------------------------------------------------------------
    If Congress wants to address inequality, the most impactful change 
I can think of that does not raise taxes or Government spending would 
be to require immediate posting of all deposits under $5,000 by all 
banks. Make this happen and save American families billions in 
overdrafts, check cashing fees, payday lending fees, late fees, and 
other problems caused by our slow payment system.
    4. Smarter payments regulation. A series of tricks allow some banks 
and credit unions to increase overdraft revenue in part by taking 
advantage of the slow payment system. Two of these can be ended through 
joint regulation: posting debits before credits and reordering payment 
flows from largest to smallest. When payments come in a batch, which is 
common in our current payment system, the financial institution working 
with its core processor has some discretion in how it posts payments. 
The best practice for the consumer would be to post all of their 
credits first and then start debiting their account. A recent study by 
the CFPB found that almost 90 percent of banks and two-thirds of credit 
unions did this. \36\ However, that left one-third of credit unions and 
10 percent of banks posting some debits before credits, a practice that 
would result in more consumers overdrafting. This should be stopped.
---------------------------------------------------------------------------
     \36\ Kelly, Nicole, and Eva Nagypal. ``Data Point: Checking 
Account Overdraft at Financial Institutions Served by Core 
Processors''. Consumer Financial Protection Bureau, December 2021. 
https://files.consumerfinance.gov/f/documents/cfpb-overdraft-core-
processors-report-2021-12.pdf
---------------------------------------------------------------------------
    The same study found that while nearly two-thirds of credit unions 
ordered the credits chronologically, only 22 percent of banks did. 
However, larger banks were more likely to order chronologically, with 
46 percent banks over $2 billion in size doing so. The study found a 
concerning 40 percent of banks in the sample reordered from largest 
payment to smallest, a trick that would result in more overdrafts. Less 
than 1 percent of credit unions did this trick. To be fair, 44 percent 
of banks and almost 10 percent of credit unions reordered from smallest 
to largest, which should minimize overdrafts. Many financial 
institutions are doing the right things and should be acknowledged as 
such. Regulation is still needed as there are also many institutions 
doing the wrong thing. Hopefully institutions who are doing the right 
thing by their customers would be supportive of their best practices 
being mandated across the industry.
    5. Universal Bank-On-style accounts. All financial institutions 
should be required to offer a no overdraft, low-cost, basic bank 
account. \37\ These accounts have proven to be popular when properly 
offered and marketed (see Citibank reporting one in five new customers 
opening one) and can be done in a way that is profitable for the 
financial institution. The American Bankers Association calls it a best 
practice for all banks to offer this type of account. This best 
practice should be mandated for all banks and credit unions. Draft 
legislation proposed in the House would do so for all banks and credit 
unions above $10 billion and this legislation would make a major 
positive difference in addressing the problems of un- and under-banked 
Americans. \38\ It does so with no additional Government spending or 
costs imposed on financial institutions, many of which already offer 
these accounts. Given the importance of small banks and credit unions 
in reaching all Americans, I think all financial institutions should be 
required to offer these accounts. After all, all banks and credit 
unions are chartered by the Government and have a duty to serve their 
communities. Providing a basic, low-cost account that is accessible to 
all community members should be a part of that obligation.
---------------------------------------------------------------------------
     \37\ Klein, Aaron, and Myrto Karaflos. ``Universal Bank Accounts 
Necessary for Families To Bank on Child Tax Credit''. The Brookings 
Institution. April 29, 2021. https://www.brookings.edu/opinions/
universal-bank-accounts-necessary-for-families-to-bank-on-child-tax-
credit/
     \38\ United States House of Representatives. ``Expanding Access to 
Affordable Bank Accounts Act''. March 28, 2022. https://
financialservices.house.gov/uploadedfiles/033022--bills-117pih-
expandingaccesstoaffordable-u1.pdf
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    Universal accounts expand access to the financial system. The 
number one reason why people are unbanked is the high cost of basic 
bank accounts. Approximately half of people without bank accounts 
report having had an account in the past, highlighting that people 
leaving the banking system are driven by the high cost of accounts. 
Requiring no-overdraft accounts will help better meet the needs of 
lower-income consumers.
Conclusion
    America's largest banks and others around the world have made many 
sweeping changes to their products that will substantially reduce usage 
of overdrafts and overall cost of banking for consumers. These changes 
will likely save American consumers $5 billion a year, putting money 
directly in the hands of people who are living on the financial edge. 
The banks and credit unions who have made these changes should be 
commended and more should follow suit. It is not easy for a company to 
change in a way that reduces its immediate profits but improves the 
lives of its customers. This behavior should be rewarded.
    The less a bank depends on overdraft revenue the more likely it is 
to give it up. A handful of banks and credit unions operate on business 
models entirely dependent on overdraft revenue for their viability. 
Financial regulators must no longer tolerate this. They should never 
have tolerated it in the first place. The market has moved; regulators 
need to adapt.
    The explosive growth and popularity of overdraft as a product 
reveals deeper structural problems with America's basic banking system. 
Slow payments, limited options for small dollar liquidity, and fees 
designed to be punitive rather than in accordance with actual costs are 
core reasons why overdraft became so widely used. These problems drive 
people out of the banking system and take billions from working 
families living paycheck to paycheck.
    The positive changes by banks on overdraft fees are a step in the 
right direction. But they do not address the underlying problems. 
Congress has the ability to fix many of these problems and deliver a 
financial system that works better for working people. Critically, many 
of these solutions, like real time payments, do not require raising 
taxes or new Government spending or new programs. That a person ought 
to have access to their own money immediately should be a bipartisan 
ideal.
    I appreciate the opportunity to testify before the Committee and 
look forward to answering your questions.
                                 ______
                                 
                    PREPARED STATEMENT OF JASON WILK
               Founder and Chief Executive Officer, Dave
                              May 4, 2022
    Good afternoon, Chair Warnock, Ranking Member Tillis, and 
distinguished Members of the Subcommittee. Thank you for inviting me to 
participate in today's hearing.
    The topic of the hearing aligns closely with the story of Dave. 
First and foremost, Dave is a technology company building financial 
solutions to serve everyday Americans and working families who are 
struggling with some or all aspects of their financial lives.
    Dave is a powerful app designed to unlock fair financial services 
for the 170 million Americans who need it most, the financially 
vulnerable and the financially coping. Our mission was and is to build 
a superior banking solution for anyone living paycheck to paycheck.
    By estimates, there are 35 million people who are financially 
vulnerable, struggling with every aspect of their financial life. These 
are individuals who overdraft 10 to 20 times per year, are reliant on 
single-pay credit, and need help building credit and finding new work 
opportunities. \1\
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     \1\ Financial Health Network's 2021 Financial Health Pulse Report.
---------------------------------------------------------------------------
    Additionally, there are approximately 131 million Americans who are 
financially coping, struggling with some but not all aspects of their 
financial life. This group is overdrafting several times per year, 
needs help building credit, and needs access to affordable short and 
long-term credit, savings and investing advice. \2\
---------------------------------------------------------------------------
     \2\ Ibid.
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    Our goal, in 2017, was to disrupt overdraft, a proven pain point 
for the financially vulnerable and the financially coping. Americans 
pay more than $30 billion annually in overdraft fees to traditional 
banks, with the typical transactions causing overdrafts being those to 
buy gas and groceries. \3\ I myself was a victim of significant amounts 
of overdraft fees when I was in college and following school--
especially with my second business where my initial salary was capped 
at $30,000 a year, living in San Francisco and having to travel back to 
Los Angeles. As you can imagine, that's a challenging salary to live 
off of and I was consistently hit with high overdraft fees while living 
on couches. And if it was happening to me--as somebody who grew up in a 
middle class family--then I can only imagine the impacts as you move 
down the income scale, especially moving into predominantly minority 
and lower income communities.
---------------------------------------------------------------------------
     \3\ Tara Siegel Bernard. 22 June 2021. ``Banks Slowly Offer 
Alternatives to Overdraft Fees, a Bane of Struggling Spenders'', New 
York Times.
---------------------------------------------------------------------------
    Against this backdrop, we started by building a simple app allowing 
customers to link their existing bank account to our financial insight 
tool to help customers understand what bills are coming up that could 
lead to an overdraft in their bank account. This service is 
increasingly useful in a world with so much tied to auto pay and direct 
debit, which makes it difficult to keep track of which bills could 
cause us to go negative. With our ``insights,'' through a little head's 
up, customers had the ability to prevent a water, power, or Netflix 
bill triggering a $34 overdraft fee. \4\
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     \4\ CFPB Director Rohit Chopra. 01 Dec 2021. ``Prepared Remarks of 
CFPB Director Rohit Chopra on the Overdraft Press Call''. ``Most 
financial institutions charge a fee, typically around $34, for this 
service.''
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    We realized early on--and also based on my own personal 
experience--that consumers are primarily using overdraft knowingly, as 
a form of overpriced short-term credit. I relied on overdraft to fill 
my gas tank. I relied on overdraft to buy groceries. I did not see a 
payday loan or a high interest credit card as a viable option. I also 
recognized that I only really needed $50 to $100 to get by until a 
paycheck hit.
    With this in mind, we sought to find a better option than 
traditional and expensive overdraft to address the smaller dollar, 
short-term liquidity needs of our customers that were triggering 
overdraft fees. Our solution was to offer our customers instant, 
interest-free liquidity, up to $250, whenever they need it to buy those 
everyday essentials without incurring high overdraft fees. Millions of 
customers now access our ExtraCash service. We estimate consumers have 
saved over $1.5 billion in overdraft fees, with $50 million in 
ExtraCash transactions delivered. \5\
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     \5\ Dave Analyst Day. 25 Mar 2022. ``Dave users have taken over 
$45M of overdraft protection advances, typically avoiding about $35 
overdraft fee from their legacy bank. Dave Users have recorded in 
aggregate $300-400M/year in fees from their legacy banks in 2019-
2020.''
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    Our customers can also open a Dave Bank account, which we launched 
in December 2020 through a partnership with Evolve Bank & Trust. Dave 
Banking comes with no minimum balance fees or overdraft fees, real-time 
spend alerts, and the ability for our customers to access their 
paycheck up to 2 days early.
    Lastly, we're the first fintech to help customers put money in 
their pockets by tapping into the gig economy through our ``Side 
Hustle'' capability. This product helps customers apply to additional 
side income opportunities from Uber, Instacart, DoorDash, Lyft, and 
other partners. We have facilitated nearly three million applications 
for work since this launched, in 2019, helping our members generate 
millions of dollars in incremental income. \6\
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     \6\ Ibid. ``2.9M+ job applications submitted since Sept. 2020.''
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    As you can see, at Dave, we are constantly striving to add services 
and functionality to our product set to improve our customers' 
financial health. Through our innovation practices and determining the 
pain points for the everyday consumer, we anticipate that we will 
continue to add additional tools to help improve the financial lives of 
our customers. To that end, later this year we plan to add yet another 
option to improve the financial life of our customers--allowing them to 
build their credit when using Dave for some of their regular 
transactions.
    At the end of the day, Dave stands for the everyday person; the 
everyday mom or dad who make up the backbone of today's working family. 
We realize that overdraft--as a short-term solution for the next tank 
of gas or bag of groceries--is critical to millions of Americans. But 
traditional financial services failed to deliver a fair product. At 
Dave, we're working to level the financial playing field for those who 
need it most.
    Thank you again for the invitation to appear before you. I look 
forward to answering your questions.
                                 ______
                                 
                 PREPARED STATEMENT OF DAVID POMMEREHN
Senior Vice President and General Counsel, Consumer Bankers Association
                              May 4, 2022
    Chairman Warnock, Ranking Member Tillis, and Members of the 
Subcommittee, I am David Pommerehn, General Counsel at the Consumer 
Bankers Association (CBA) and I appreciate the opportunity to testify 
at today's hearing. In my two decades within the financial services 
industry, I have worked to promote consumer choice and for the 
establishment of products that meet consumers' needs, including 
overdraft services. CBA is the voice of the retail banking industry 
whose products and services provide access to funding for millions of 
consumers and small businesses. Our members operate in all 50 States, 
serve more than 150 million Americans, and collectively hold two-thirds 
of the country's total depository assets.
    With ongoing financial difficulties due to the pandemic, the 
average American is struggling to ensure they have access to the 
necessities their families need. From gas to get to work, to groceries 
to feed their children, people need access to emergency liquidity at 
increasing rates. According to the Federal Reserve, nearly half of all 
American adults say they cannot cover an unexpected expense of $400. 
Similarly, Bankrate states ``63 percent of American adults say they are 
unable to pay an unexpected expense with their savings.'' The Financial 
Health Network (formerly the Center for Financial Services Innovation) 
study found that more than a third of all households say they 
frequently or occasionally run out of money before the end of the 
month. \1\
---------------------------------------------------------------------------
     \1\ https://www.federalreserve.gov/publications/2021-economic-
well-being-of-us-households-in-2020-dealing-withunexpected-expenses.htm
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    Banks are aware of these challenges and work diligently to provide 
access to safe and affordable products to U.S. consumers. The demand 
for overdraft services is based largely on customer need and choice and 
for many, is the last viable source of short-term liquidity. In recent 
years, various groups have examined how consumers use overdraft 
services. Some have concluded overdraft services are inherently bad for 
consumers. These studies have largely assumed a reasonable consumer 
would avoid overdraft and institutions providing overdraft services 
must therefore be ``tricking'' consumers. These assumptions are 
fundamentally flawed. The overdraft product is based on clear 
disclosures and personal experience. The decision to proactively opt-in 
and utilize the overdraft product is solely up to the customer.
    The regulatory framework that governs overdraft services for point-
of-sale (POS) and ATM transactions clearly acknowledges the role of the 
consumer to make informed, individual choice about what is best for 
their personal financial well-being. In 2010, significant changes were 
added to the law on POS and ATM overdraft services to increase 
transparency and improve disclosures. \2\ Since the implementation of 
these reforms, consumers must affirmatively opt-in to overdraft 
services for POS and ATM withdrawals and debit card purchases, and they 
receive numerous written disclosures concerning their right to revoke 
the decision to opt-in at any time, including an account statement 
disclosure whenever they incur an overdraft fee. Consumer choice is 
central to the functionality of the overdraft product, allowing for 
maximum transparency. This is contrary to recent statements made by the 
Director of the Consumer Financial Protection Bureau (CFPB or Bureau) 
and other policymakers that have likened overdraft services to ``junk 
fees'' that are not properly conveyed to consumers. Statements that 
overdraft fees are hidden and that consumers do not choose to use them 
present an inaccurate and misleading depiction of the product.
---------------------------------------------------------------------------
     \2\ The Electronic Funds Transfer Act, 15 U.S.C. 1693, et seq., 
and its implementing regulation, Regulation E, 12 CFR Part 1005, 
administered by the Bureau, regulates mandatory overdraft service opt-
in for checking accounts. The Truth in Savings Act, 12 U.S.C. 4301 and 
its implementing regulation, Regulation DD, 12 CFR Part 1030, requires 
banks to provide to consumers disclosures about terms and costs of 
deposit accounts fee disclosures in checking accounts.
---------------------------------------------------------------------------
The Risks of Restricting Overdraft
    The restricting overdraft services would create complex challenges 
for consumers, service providers and merchants. For consumers, 
restrictions on overdraft services would reduce access to an emergency 
safety net on which many Americans rely. Further, merchants and service 
providers would be forced to deny the transaction, creating a loss of 
income from a given sale of goods or services.
    Consumers would still incur insufficient funds fees, which in most 
cases are equal to the fee charged for an overdraft. In addition, if 
the bank or credit union does not cover the transaction, the customer 
may incur a returned payment fee imposed by the payee or merchant, 
resulting in additional fees in the form of late and/or interest 
related fees. In the end, the consumer may pay more in fees than if the 
bank had covered the item using overdraft services. \3\
---------------------------------------------------------------------------
     \3\ Note that this is only true for checks and ACH transactions. 
It is not true for ATM and debit card transactions for customers who 
did not opt-in. Those transactions are declined at point of sale with 
no NSF fee.
---------------------------------------------------------------------------
    Returned items can also result in nonmonetary costs for consumers. 
After imposing a nonsufficient funds fee (NSF), the merchant may also 
report that event to a credit bureau which can adversely affect the 
consumer's credit score. The NSF fees can vary by merchant transaction 
and depend upon when the check or transaction is cleared or posted to 
the consumer's financial institution. When given an option, many 
consumers would prefer having their purchase paid for and not returned 
since merchant NSF and associated fees can be higher than fees for 
overdraft services. Restricting the availability of overdraft services 
may also cause some consumers to switch to nonbank lenders who are less 
equipped to provide them with a suite of suitable financial products 
services, such as a significantly less regulated payday lender or check 
casher. Additionally, these institutions do not abide by the same broad 
Federal oversight as banks, depriving consumers of the high level of 
regulatory protection they deserve.
Regulatory Acknowledgement
    In December 2021, Office of the Comptroller of the Currency's (OCC) 
Acting Comptroller Michael Hsu recognized overdraft services as one of 
the last viable sources of short-term liquidity for many U.S. 
consumers. In his remarks, Acting Comptroller Hsu commented on the 
state of the overdraft market in the United States, highlighting the 
important need to provide safe and affordable short-term liquidity 
options for consumers within the well-regulated, well-supervised 
banking system. \4\
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     \4\ Acting Comptroller Michael J. Hsu Remarks before the Consumer 
Federation of America's 34th Annual Financial Services Conference 
(December 8, 2021)--``Reforming Overdraft Programs To Empower and 
Promote Financial Health''--https://occ.treas.gov/news-issuances/
speeches/2021/pub-speech-2021-129.pdf.
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    Recognizing the OCC's intent to protect financially vulnerable 
Americans, Hsu commented while some banks have eliminated overdraft 
from their financial suite, widespread adoption of this practice may 
yield unintended consequences. He stated: ``limiting overdrafts may 
limit the financial capacity for those who need it most,'' noting the 
import benefit overdraft services can provide to consumers. CBA agrees 
with the Acting Comptroller and encourages other policymakers to 
undertake a comprehensive review of the overdraft market before 
promulgating changes that may have adverse effects for consumers.
    Additionally, On April 27, 2022, commenting on recent bank-led 
overdraft innovations while testifying before the House Financial 
Services Committee, CFPB Director Rohit Chopra stated: ``This is one of 
the beauties of a competitive market. When there is real competition [ 
. . . ] people can benefit across the board.'' Director Chopra 
understands the market is self-regulating and that banks are 
proactively removing or significantly decreasing these fees to ensure 
the retention of consumers.
Consumer Demand Leads to Change
    Well informed and technically savvy consumers drove recent changes 
to overdraft. Driven by a commitment to meeting evolving consumer 
demands, America's leading banks have unveiled innovative financial 
tools to provide consumers more choice and flexibility to avoid 
unintended fees.
    In December of 2021, Curinos, a global data intelligence firm, 
released its ``Competition Drives Overdraft Disruption'' study 
(Appendix A), which found consumers make highly informed choices about 
who they bank with and when to use overdraft services. \5\ These 
decisions are based on real-time access to account information, clear 
disclosures and personal experience.
---------------------------------------------------------------------------
     \5\ Curinos, Competition Drives Overdraft Disruption (December 
2021)--https://curinos.com/insights/competitiondrives-overdraft-
disruption/--attached hereto as Appendix A. This study was initiated at 
the request of the CBA to fill a research gap in better understanding 
consumer sentiment, and CBA provided funding for the market research 
survey. Curinos independently designed, analyzed, and documented the 
research results.
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    Accordingly, a growing number of America's leading banks have 
unveiled new innovations designed to avoid overdraft fees or have an 
overdraft product with features selected by the consumer (Appendix B). 
Banks have proactively implemented new overdraft polices that benefited 
consumers use of the product that include: the elimination of overdraft 
fees, the elimination of account transfer fees to coverage overages, de 
minimums exceptions to cover small overages (i.e., avoiding an 
overdraft trigger after purchasing a cup of coffee), grace periods for 
customers to make accounts whole before overdraft fees are ever 
assessed, access to small dollar loans (discussed more fully below), 
eliminating extended overdraft fees, eliminating returned items fees, 
real-time account updates and low balance notices. We believe these and 
other changes, in conjunction with clear disclosures, add continued 
benefit to consumers who rely on overdraft services to cover short-term 
gaps in finances by continuing to provide a viable service at minimal 
or no cost.
    In many cases, these changes have also been accompanied by the 
introduction of affordable small loans, serving as an additional 
emergency safety net for consumers who are unable to cover an 
unexpected bill with savings alone. Without access to a viable, bank 
offered short-term liquidity product like overdraft, consumers will be 
left with little recourse but to use less-supervised, less-regulated, 
nondepository institutions to meet their needs--an undesirable position 
to place vulnerable consumers.
Curinos Data--Consumers Understand Benefit and Value Overdraft
    The Curinos research found the changes to bank overdraft service 
programs is being driven more by competition instead of regulation and 
the market rewards organizations that overhaul their existing overdraft 
programs or develop alternative products. Institutions that are slow to 
act are losing customers to more aggressive competitors. As a result, 
financial institutions will continue to innovate and provide more low-
cost liquidity options, with or without regulatory changes.
    Backed by Curinos' proprietary research, the report methodology 
encompasses both consumers on the demand side and financial 
institutions on the supply side. On the demand side, Curinos leveraged 
an annual online consumer research study on checking account purchase 
behavior of approximately 12,000 respondents, and a targeted online 
consumer research study on overdraft behaviors. On the supply side, 
Curinos utilized a review of disclosures and offers from 38 financial 
institution websites, matching a 2015 Pew Study where possible, along 
with an anonymized survey of behavioral data from 14 financial 
institutions with $2 billion to $50 billion in total assets, 
representing $637 billion of total U.S. consumer deposits. Findings 
indicate consumer demand and intense competition within financial 
services are driving recent changes in overdraft policies and programs. 
Specifically, the study found:

    Consumers understand overdraft: Consumers, especially 
        overdraft users, continue to demonstrate a deep understanding 
        of overdraft and available alternatives. More than 60 percent 
        of overdrafts come from consumers who intend to use the 
        service. More than 80 percent of overdraft transactions come 
        from consumers who opted into debit card overdraft programs 
        with the clear intention of using it to cover their payments. 
        And two-thirds of consumers indicate they will incur the cost 
        to ensure no reduction in their access to service.

    Fewer people use overdraft: The percentage of regular 
        overdraft users (those with 10 or more transactions annually) 
        fell by 40 percent to 4.9 percent of the population between 
        2010 and 2020.

    Consumers use overdraft for purchases of increased size: 
        Bank-led initiatives aimed to help consumers avoid an 
        unintended fee have dramatically reduced the number of small 
        purchases tied to overdraft. Since 2008, because of banks' 
        innovations, overdraft fees, per U.S. adult, have declined by 
        77 percent, with, the average size of purchases triggering 
        overdraft fees quadrupling from $50 to almost $200.

    Consumers want more short-term liquidity choices: Consumers 
        seek convenient and relevant alternatives to overdraft. The 
        emergence of alternatives in the market is driving 
        consideration of new checking purchases.

    Overdraft fee revenue is down significantly: U.S. overdraft 
        revenue fell approximately 57 percent from $40 billion in 2008 
        to $17 billion in 2019.

    Challengers that adopt consumer-friendly policies, win 
        market share: New entrants, including fintechs and challenger 
        banks who have seen a dramatic increase in market share, have 
        created solutions to better manage or reduce the cost of 
        overdraft. These entities have experienced a 40 percent 
        increase in account acquisition since 2017. Financial 
        institutions that haven't adopted overdraft innovation have 
        experienced a nearly 30 percent reduction in consumer 
        acquisition.

    These findings underscore the fact that, outside of overdraft, few 
options remain for consumers to meet their emergency liquidity needs 
within the well-regulated, well-supervised banking system. CBA has long 
warned, and bank regulators agree, further restricting access to short-
term liquidity options, such as overdraft services, would drive many 
families to predatory payday lenders and other expensive, less-
regulated venues. Accordingly, we urge policymakers to focus on the 
consumer need, a complete market analysis, including the many changes 
already in place, and take into consideration all the facts as they 
consider future action. It is our commitment to provide every consumer 
access to highly regulated financial products and services.
Small-Dollar--An Essential Solution to Emergency Liquidity Deficits
    Access to reasonably priced small-dollar liquidity products is 
essential to meeting consumer need with regards to cash shortfalls. 
While various entry-level credit products exist to meet a wide range of 
these needs, including traditional credit cards, personal loans, and 
other forms of credit, some consumers unfortunately cannot qualify.
    When debating policy affecting overdraft service, we urge 
policymakers to also consider a viable solution to help consumers who 
need short-term loan options--small-dollar lending. Today, the need for 
accessible small-dollar, emergency credit for consumers has never been 
greater and banks have been encouraged by policymakers to enter or 
remain in the small-dollar lending market. In the past, banks worked 
with regulators to develop products carefully designed to ensure strong 
safeguards at reasonable prices. However, as highlighted in a recent 
report for the Government Accountability Office (GAO), depository 
institutions are hesitant to offer such loans in part because of the 
changes to related rules or guidance in recent years. \6\ In 
particular, some market participants have noted that banks do not want 
to offer small-dollar products because they are expensive to develop, 
and the regulations or supervisory expectations may change. The GAO 
went on to note that from 2010 to 2020, the Federal Reserve, the 
Federal Deposit Insurance Corporation, and the Office of the 
Comptroller of the Currency issued or rescinded at least 19 actions 
related to small-dollar loans, leading to continued regulatory 
uncertainty.
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     \6\ ``Banking Services: Regulators Have Taken Acton To Increase 
Access, But Measurement of Actions' Effectiveness Could Be Improved'', 
GAO (February 2022).
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    Consumer demand still exists for a short-term loan product and, if 
allowed, highly regulated banks can make safe, affordable, and easy to 
access small-dollar loans to consumers in need.
The CFPB Fee Inquiry
    Heavily shaping the current overdraft fee debate, on January 26, 
2022, the CFPB issued a Request for Information Regarding Fees Imposed 
by Providers of Consumer Financial Products or Services (RFI). \7\ In 
the RFI, the CFPB seeks public feedback regarding fees, calling out 
overdraft fees directly, that are not subject to competitive pricing to 
assist the CFPB in exercising its authority to create fairer, more 
transparent, and competitive consumer financial markets.
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     \7\ https://www.lenderlawwatch.com/wp-content/uploads/sites/9/
2022/02/CFPB-Junk-Fees.pdf
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    CBA has several concerns we would like to bring to the attention of 
the Subcommittee. First, fee amounts and disclosures are subject to 
numerous Federal and State laws. Second, fees are a necessity that 
allows lenders to recoup operational costs, mitigate risk and can even 
deter repeated use by a customer. Finally, by characterizing various, 
disconnected charges as ``junk fees,'' the RFI serves to confuse 
consumers and undercut the purpose and utility of disclosures that 
regulators have worked so hard to police and implement.
    Federal and State agencies routinely monitor the adequacy of 
disclosures made to consumers about fees. The Bureau itself 
consistently engages in enforcement actions where it believes entities, 
including banks and other financial institutions, have failed to 
disclose properly the fees associated with any consumer product. 
Recently, the Bureau took enforcement action finding a financial 
services company ``provided consumers with inaccurate or incomplete 
information about the fees it assessed.'' \8\ The Bureau has been swift 
to act where it perceives problems, with the agency's most important 
and effective enforcement actions coming in directed, targeted efforts 
to address the practices of individual bad actors, rather than 
overbroad generalizations that sweep the entire industry into its 
crosshairs.
---------------------------------------------------------------------------
     \8\ See ``In the Matter of JPay, LLC'', File No. 2021-CFPB-0006 
(Oct. 19, 2021); https://www.consumerfinance.gov/about-us/newsroom/
cfpb-penalizes-jpay-for-siphoning-taxpayer-funded-benefits-intendedto-
help-people-re-enter-society-after-incarceration/.
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    Whether you are a bank or a box store, businesses remain in 
operation by the net revenues they receive by offering a product or 
service and charging a fee for those products and services. Banks and 
financial institutions are not the only place where consumers encounter 
fees. The Federal Government regularly charges fees as a penalty or to 
mitigate costs. A late payment to the IRS triggers a fee, a parking 
ticket results in a fee, even State and local governments charge fees 
for a variety of services. As the Curinos study showed, many consumers 
are willing to incur a fee for the ability to use overdraft products 
when making purchase decisions. Bank fees are highly disclosed and, as 
previously mentioned, in the case of overdraft there is an ``opt in'' 
requirement that the customer must choose. An increasing number of 
consumers look to disclosures to better understand how fees are applied 
and, in some cases, how to make fees work for them as a daily function 
of their financial decisions.
    Congress charged the Bureau with enforcing Federal consumer law 
consistently, ``in order to promote fair competition.'' \9\ With 
individual financial institutions disclosing, fully and completely, 
what their fee practices entail, consumers can make informed choices. 
The Bureau itself provides information designed to help consumers 
understand overdraft fees and comparison shop between different 
financial institutions. \10\
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     \9\12 U.S.C. 5511(b)(4).
     \10\ See, ``Comparing Overdraft Fees and Policies Across Banks'', 
by Rebecca Borne and Amy Zirkle (Feb. 10, 2022); https://
www.consumerfinance.gov/about-us/blog/comparing-overdraft-fees-and-
policies-across-banks/.
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Conclusion
    Banks provide access to safe, well regulated, high-quality consumer 
products and services, and have invested significant resources toward 
innovating overdraft services for consumers' long-term benefit. We 
encourage policymakers to work with all stakeholders to avoid any 
unnecessary restraint on bank products or services by carefully 
considering all the options available that could impede the ability of 
those most in need of the tools they need to address their financial 
needs. CBA appreciates the opportunity to provide our thoughts to the 
Subcommittee and we remain eager to work with you on our shared 
commitment to improve financial opportunities for all Americans.
    Appendix A: Curinos 2021 Overdraft Study, ``Competition Drives 
                         Overdraft Disruption''

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                 Appendix B: Bank Overdraft Innovations

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        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                        FROM JASON WILK

Q.1. Consumer advocates have raised concerns over the ``tips'' 
model employed by overdraft and cash advance apps, calling them 
``an attempt to mask finance charges, evade interest rate 
limits, and hide overdraft fees.'' \1\ These apps are 
increasingly soliciting ``voluntary'' tips from customers in 
exchange for their service. However, while the tips may be 
voluntary in name, these apps have been found to employ methods 
aimed at pressuring customers to tip and making it difficult to 
not tip. Additionally, some of these apps have been found to 
have their voluntary tip model default at a certain dollar 
figure. These individual default tip may appear relatively 
small to customers each pay period, but can quickly add up to 
high costs and interest rates equivalent to annual percentage 
rates (APRs) as high as 520 percent, creating ``cycles of 
debt.'' \2\ For this reason, tips provide companies like Dave 
an opportunity to evade interest rate limits and other lending 
laws. In order to better understand the tips model and how your 
company utilizes it, I request answers to the following 
questions:
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     \1\ https://www.nclc.org/images/pdf/banking-and-payment-systems/
NCLC-comments-on-CFPB-Junk-Fees-RFI-87-FR-58015.2.22.pdf
     \2\ Id.
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    What percentage of users of the advance service tip?

A.1. The tipping option came out of our overall philosophy: to 
find ways to build and offer products that banks won't. That's 
why we started with no interest cash advance. If people like 
the product, they have the option to tip. And we find the 
numbers go up as people access the product more than once. 
Approximately 64 percent and 75 percent of Members chose to 
leave a tip for the 3 months ended March 31, 2022, and 2021, 
respectively.

Q.2. What is the average tip, both in dollar amounts and in 
percentage of the advance?

A.2. The average amount of tip Members chose to leave was 
approximately $6.93 and $4.07 per advance for the 3 months 
ended March 31, 2022, and 2021, respectively. We do not 
calculate the tip as a percentage of the advance.

Q.3. How much is the average tip in APR terms?

A.3. The advances that Dave makes are nonrecourse and a 
majority are fully repaid by the Member by their next pay 
period. As such we do not calculate an APR on tips and believe 
that APR is not a fair representation of the total cost of 
capital.

Q.4. How much have you collected in tips in the past year, and 
what percentage of your revenue comes from consumer tips?

A.4. Tips for the 3 months ended March 31, 2022, were 
approximately $13.9 million. We do not publicly disclose what 
percentage of our revenue is generated through tips.

Q.5. What percentage of consumers request advances pay express 
fees, and what percentage of your revenue come from express 
fees?

A.5. In terms of delivery of the advances, users can opt for 
free advance, which takes 1-3 days, or an optional express fee 
for faster delivery. The expedited transfer fee ranges from 
$1.99 to $5.99, depending on the size of the advance taken. The 
average is around $5. While use of the expedited transfer is 
entirely optional, nearly all customers do choose it. This fee 
is similar to other financial products that involve fund 
transfers, including those offered by Paypal and Venmo.

Q.6. How much have you collected in express fees in the past 
year?

A.6. We do not publicly disclose this information. We are happy 
to discuss this or other questions in more detail with you or 
your staff.

Q.7. Do you treat consumers who do not tip differently in any 
way?

A.7. We do not treat Members who choose not to tip differently. 
It is completely optional and there is no difference in service 
or access to services for those who choose not to tip.
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