Americans whose income took a hit from the coronavirus pandemic have paid more in overdraft fees than those who weren’t financially hurt by COVID-19. People of color, for instance, are paying more than twice the amount in banking fees than white Americans, according to a recent Bankrate survey. But some banks, like Detroit-based Ally Bank, the largest U.S. digital bank, have cited the impact that overdraft fees have on Black and Latino households, which are historically poorer than their white counterparts and are hit with these fees more often. Overdraft fees are what a bank charges any time a customer withdraws more money from their account than they hold in it. It’s also a common reason why Black and Latino households choose to be “unbanked,” or living without a bank account in order to avoid the fees that often come with them. Last week, Ally Financial said it will eliminate overdraft fees for all of its banking products, making it the first major bank to end these fees across its entire business. The main reason for the fee elimination was how onerous it was to low-income people, Ally said. ►Overdraft fees:Ally Bank ends them, first large bank to do so A spending boom?:Lower-income Americans feel left behind
►Banking response:JP Morgan Chase to spend $30 billion to close racial wealth gap
JPMorgan Chase, for instance, collected the most revenue, making almost $1.5 billion from overdraft fees, according to Bloomberg, though the bank said it waived fees for customers affected by COVID-19.
Low-income households feel the pain
Costs associated with overdraft fees have hurt low and moderate-income Americans the most, including Black Americans and Latinos, according to the latest FinHealth Spend Report. Black households with checking accounts are 1.9 times more likely to have overdrafted than white households while Latinos were 1.4 times more likely than white households.
Forty-three percent of “vulnerable households” with checking accounts, or those who struggle to spend, save, borrow and plan, report having overdrawn from their accounts in the past year, with 9.6 overdrafts on average.
“Overdraft fees have become a form of financial quicksand for low-income households that are living paycheck to paycheck,” McBride said.
How to avoid overdraft fees
Overdraft fees can be avoided if you take some precautions.
1. Sign up for overdraft protection
With overdraft protection, the bank will transfer money from one of your other accounts to cover an overdrawn amount.
2. Sign up for bank alerts
Set up an alert to notify you when your account balance falls below a certain amount. This is a simple way to avoid unexpected overdrafts and save fees.
3. Try to get an overdraft fee waived
If you are charged an overdraft fee, that doesn’t always mean you are stuck paying it. It doesn’t hurt to negotiate to try to have the fee reimbursed. Be sure to call. There’s no guarantee it will work, but you can call and ask the bank to remove the charge from your account.
Contributing: The Associated Press