Senate Banking Committee via AP
JPMorgan Chase CEO Jamie Dimon testifies to the Senate Banking Committee, May 26, 2021.
On May 26, Jamie Dimon sat virtually across from Elizabeth Warren in what would become one of the highest-profile and most contentious congressional spats of the year. Dimon, along with executives from top banks, was appearing before the Senate Banking Committee, where the conversation between him and Sen. Warren quickly turned into an acrimonious back-and-forth over the industry-leading $1.5 billion in overdraft fees JPMorgan Chase charged during 2020, first reported by the Prospect. The exchange soon went viral.
“You’re the star of the overdraft show,” Warren told Dimon. “Your bank, JPMorgan, collects more than seven times as much money in overdraft fees per account than your competitors.”
Dimon shot back. “At any request when someone said they needed COVID relief, they got $120 million of COVID relief on request,” he claimed.
“You and your colleagues come in today to talk about how you stepped up and took care of customers during the pandemic and it’s a bunch of baloney,” said Warren.
While the Warren-Dimon exchange impugned JPMorgan Chase’s behavior toward the neediest in our society, who have suffered through a pandemic that has killed over 600,000 Americans, the financial press and various public relations efforts sprung into action, attempting to redeem the country’s biggest banks by casting them in a much more flattering light. The Wall Street Journal, for instance, generously pointed out that the total revenue from overdraft fees fell during 2020. “Lenders waived fees, pushing down overdraft revenue nearly 10%,” the article offered, stressing that the unfairly maligned JPMorgan Chase “brought in $1.46 billion in overdraft fees last year, down 29% from 2019, according to regulatory filings.” This dovetailed with Dimon’s own line about the largesse of the bank’s voluntary forgiveness, while endeavoring to correct the record on a fast-growing public relations nightmare.
Then, a day after Warren’s examination, Dimon spoke at a House committee hearing armed with new information, claiming that his bank had actually refunded more than $400 million in overdraft fees in 2020 and the first quarter of 2021, a huge step up from the $120 million he was claiming the day before.
The country’s largest financial institutions have cynically taken credit for the federal government’s public-assistance programs throughout the pandemic.
At least until recently, banks had been riding a wave of favorable press over 2020’s decline in overdraft fees, which came in tandem with their pledge to voluntarily reverse charges upon request through the duration of the pandemic. Those declining numbers have led some to conclude that overdraft fees, in the midst of a meteoric rise before the pandemic, have taken care of themselves, thanks to banks’ newfound generosity. But those banks’ own self-reported data on overdraft paints a much different picture, one where the country’s largest financial institutions have cynically taken credit for the federal government’s public-assistance programs throughout the pandemic, with its three stimulus checks and enhanced unemployment benefits.
According to FDIC filings, the first quarter of 2020 saw banks keeping pace with 2019’s record-setting overdraft fees. When a report came out in mid-2020 showing that U.S. banks took $11.68 billion in overdraft fees out of customer accounts during 2019, the immediate response from the financial industry was to point to these voluntary commitments to waive overdraft fees during the pandemic. The American Bankers Association directed The New York Times to acknowledge that new, “unprecedented assistance” on offer.
A wholesale change of policy, with full preparation to waive the millions of individual overdraft fees incurred in a year, would be immediately evident in the data. For one thing, any meaningful commitment to enact that change would have required a major expansion of multilingual call centers and administrative capacity, ready to receive and process those requests to waive charges. There has been little evidence of that at any of the major banks.
More importantly, though, quarterly overdraft numbers indicate that overdraft fee amounts were strongly correlated with the disposition of stimulus checks. Almost across the board, big banks lost about half of their overdraft revenue between the first quarter of 2020, before the coronavirus lockdown, and the second quarter, the time during which $1,200 checks were delivered to most Americans and federal unemployment was given a $600-a-week enhancement. Keep in mind, too, that with the economy on lockdown in much of the country and less opportunity to spend on things like in-person bars and restaurants, many customers with high propensity to overdraw accounts were instead saving money through this period, in addition to receiving emergency funds.
In the third quarter, between July and September, as enhanced unemployment expired and no checks were delivered, overdraft figures crept back up to about 70 percent of where they had been. In the last three months of 2020, before a $600 check was disbursed in that secondary stimulus refresh, the number went even higher, to between 75 percent and 90 percent of the pre-pandemic standard for most major banks. Then, in the first three months of 2021, with that $600 check and the follow-up $1,400 from the American Rescue Plan Act, overdraft fees plunged again.
For JPMorgan Chase, that meant that overdraft fees went from $506 million in the first three months of 2020, to a coronavirus low of $231 million in the next three months, up to $344 million in the three months after, and $382 million to finish the year. In the first quarter of 2021, that dropped back to $315 million. That trend is mirrored in statistics supplied by Bank of America, Wells Fargo, TD Bank, Capital One, and others. This is crucial, because not every bank had the same overdraft-relief policies in place, yet the trend line is consistent for all of them.
Quarterly overdraft numbers indicate that overdraft fee amounts were strongly correlated with the disposition of stimulus checks.
JPMorgan, of course, was supposedly waiving fees voluntarily all year long, and yet there’s no quarter-to-quarter consistency in the level of fees exacted. That’s an overwhelming indication that the forgiveness policies were far less important than the macroeconomic trends, contra Jamie Dimon’s claims. It was cash disbursement from the federal government that was responsible for lowering those fees. Banks weren’t simply being nicer.
Banks have been hesitant to cede any ground on overdraft fees. Dimon replied flatly, “no,” when asked by Sen. Warren to refund the $1.5 billion in fees charged in 2020, on the grounds that it’s a tiny percentage of the roughly $29 billion in profit the bank made that year. But part of the reason banks have been so reluctant to forgo those profits is that they actually make up a substantial percentage of what banks make on deposit accounts. For Capital One, TD Bank, and Truist Bank, it’s over 40 percent of the money they make from deposit accounts. Overdraft is extremely profitable, and deposits wouldn’t be that profitable without them.
The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency (OCC) could rein in overdrafts with ease, which is well within the power of the Biden administration, especially if the president ever gets around to appointing a head of the OCC. Awareness of that reality is likely why Ally Bank announced last week that it would be getting rid of overdraft fees, making it the first major American bank to do so.
In any case, the financial industry’s push to convince Congress that it doesn’t need to be regulated, and that it has solved the problem of predatory overdraft practices via a newfound generosity in hard times, doesn’t hold up to scrutiny. Unless regulators crack down on the practice, or unless the government continues to supply large relief funds perpetually—nice to think about, but given Biden’s reluctance to continue enhanced unemployment benefits, unlikely—bank customers will still be dealing with overdraft fees. And banks will still be making plenty of money from them.
