Access to Earned Wages and the Overdraft Fee Crisis in the United States | DailyPay, Inc.

You know we have a serious problem with economic justice in this country when the poorest Americans pay 8 billion dollars in overdraft fees in increments of $ 35 to the largest banks in the country. But that’s exactly what happened in 2020 and as the CFPB found in their recent work on this issue, in the wake of the COVID-19 pandemic, this staggering amount of money was actually a to diminish as of 2019. Unfortunately, the decrease in the number of Americans paying these overdraft fees is not the trend and overdraft fees set to reach their highest levels ever in 2021.

Despite the best efforts of consumer protection advocates and elected officials aligned alike, overdraft fees charged in the United States have steadily increased since the FDIC began collecting this data in 2015 banks with over $ 1 billion in assets. Last year, 2020, was the only exception when banks reported a 24% drop in revenue from these fees after consumers cut spending, government support hit record levels and some fees were waived due to the pandemic. The total income of banks from overdraft fees according to the Center for Responsible Lending is all the more disturbing that about 95% of this total is collected each year from financially vulnerable people.

Sadly, overdraft income grows so much in 2021 that totals are expected to surpass an all-time high of $ 11.68 billion in 2019. The CFPB recently released a total of $ 15.47 billion in 2019 includes fees charged by credit unions and small banks as well as larger ones that are required to report this information to the FDIC. Apart from notable exceptions like PNC Bank and Capital One, both of whom have recently decided to reform their overdraft programs, most banks are unwilling to make any real changes.

Of course, the banking sector has almost uniformly adopted significant consumer protection from early access to direct deposit. But that’s really it – and it’s not enough, because getting paid 1 or 2 days in advance doesn’t help you the other 14 or 13 days of the pay cycle. This is why the neobanks more and more popular with important perks like $ 200 overdraft fee cushions and why, more importantly, innovative products such as access to employer-integrated earned wages, often referred to as pay-on-demand, which has been demonstrated that they end addiction to overdraft, are so important.

Other state and federal actors have of course tried to resolve this crisis with ideas that would directly address the crisis. Congresswoman Carolyn Maloney (D-NY) Overdraft Protection Act is an example with a holistic approach that deserves attention. The Office of the Comptroller of the Currency (OCC) also recently discussed the recommendations in a speech last month that would be just as effective. But by design, legislative bodies are deliberative and require compromise to get things done. This is generally a good thing, but the national overdraft crisis is only getting worse. People need solutions now and that’s why, in addition to controlling the CFPB, we need to encourage financial innovations that can replace overdraft fees to grow as widely as possible with appropriate collateral, so that everyone has access to products that reduce the costs for frequent overruns. editors. With close attention and application of the CFPB when needed, we can hope to finally reverse the trend of overdrafts, and not just temporarily due to a single pandemic every 100 years.

Fortunately, new innovations such as the employer-integrated earned wage industry are increasingly becoming a real part of the solution. Recently, DailyPay commissioned a study with the Aite-Novarica Group, an independent research and advisory firm specializing in consumer protection in the technology and financial services industry. Aite-Novarica studied over 1,000 DailyPay users and after their work, they conservatively estimated the potential savings of $ 660 per year or more for those who had previously regularly overdrawn their bank accounts. According to the study, 97% of these users say that they no longer or rarely use their overdraft accounts (79%), or say that their occurrences of overdrafts have decreased (18%). Three-quarters of respondents attributed this relief to the use of the pay-on-demand platform.

This is encouraging data, but we know there are no quick fixes and that no innovation, industry, law or federal agency will solve this problem. But with the help of the CFPB, the OCC partnership, and other reform efforts, the FinTech industry has an exciting opportunity to develop new strategies to tackle this crisis. Unfortunately, new strains of COVID, rising rates, and economic uncertainty are having a greater economic impact on financially vulnerable Americans, so we need to make sure change happens as quickly and responsibly as possible. We look forward to standing alongside all of our like-minded allies in this battle against the billions of dollars billed to poor and vulnerable Americans in overdraft fees each year, and hope other industry partners join in. ours.

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