A Durham-based consumer advocacy group is lauding calls by U.S. lawmakers for Wells Fargo to explain a recent boost in its income from overdraft fees.
The Center For Responsible Lending commended a letter seven Senate Democrats sent this week to Wells CEO Tim Sloan expressing concern over findings that the bank’s overdraft fee income rose five times the rate of its U.S. bank peers in the third quarter. The Senate Banking Committee members asked whether that increase, reported this month by The Financial Times, has any connection to the San Francisco-based bank’s fake-accounts scandal.
In joining the requests for a Wells Fargo explanation, Michael Calhoun, president of the center, told the Observer on Thursday that Wells has been “one of the most aggressive” collectors of overdraft fees.
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“Even before this increase, when you look at overdraft fees compared with deposits, they had one of the higher rates of overdraft fees,” Calhoun said. “The core problem is they ... reap some of the highest fees.”
Ohio’s Sherrod Brown, the top Democrat on the Senate Banking Committee, and frequent Wall Street critic Elizabeth Warren of Massachusetts are among the senators who signed the Wednesday letter.
The letter expresses “great concern” over the Financial Times’ findings that Wells Fargo’s overdraft income rose 7.5 percent over the third quarter of 2015. That was more than five times the average 1.3 percent increase at JPMorgan Chase & Co., Bank of America, TD Bank and US Bank, the Times reported.
Wells’ increase, the letter points out, occurred at the same time the bank reached its $185 million settlement with authorities over claims its employees created more than 2 million potentially unauthorized customer accounts.
“Even if these overdraft revenue increases are not directly related to the fraudulent account openings, we are concerned that they may reflect similar troubling consumer sales practices,” the letter says, noting claims by former Wells employees of improper sales practices connected to overdraft protection. The letter asks Wells to reply to a list of questions regarding its overdraft practices by Feb. 14.
In a statement about the rise in its overdraft income, Wells Fargo attributed it to “a number of factors,” including primary customer growth and increased account transaction activity.
The bank also cited two changes it made in 2014 to help reduce customer overdrafts, which Wells said also reduced overdraft fee income for much of 2015.
First, Wells said it improved how it displays certain electronic payments and check items it receives throughout the day in online banking. By including the items as pending transactions, Wells said customers have access to their most current available balance so they can make deposits or transfers to avoid any overdrafts.
Also, the bank said it began posting checks and certain electronic transactions by date and time, rather than in order of highest to lowest. Eliminating highest-to-lowest ordering reduced the number of overdrafts customers could incur, Wells said.
Calhoun commended Wells Fargo for such changes but criticized what he called abusive industry practices around overdraft fees. According to a 2016 report by Calhoun’s organization, the median debit card overdraft incurred at check-out lines is $20 but the average bank fee is $35 – a figure the report called “grossly out of proportion.” Wells Fargo’s standard debit card overdraft fee is also $35.
Under federal rules that took effect in 2010, banks and credit unions can’t charge overdraft fees on automated teller machine or debit card transactions unless the customer opts in to overdraft protection.
But banks and credit unions are still able to charge overdraft fees if a check or certain recurring electronic payments would have overdrawn an account, even if a customer didn’t opt in to overdraft protection.
Last year, the Supreme Court declined Wells Fargo’s request to review a $203 million ruling against the bank in 2010 by a federal judge in California. In the class-action lawsuit, Wells Fargo was accused of sequencing debit card transactions from highest to lowest to maximize overdraft fee revenue.
“This is just one of the great cash cows that banks have developed,” Calhoun said, adding that the bulk of the fees come from customers “who are struggling from month to month.”
“There is no relationship between these fees and the cost,” he said. “And that’s one of the reasons the banks have fought so hard to continue these practices.”