Overdraft fees hit lower and middle income people the hardest. While hardworking people continue to slog it out during the pandemic, not one of the ten largest banks in the U.S. reduced or waived its overdraft fees.
Pernicious overdraft fees: According to the Center for Responsible Lending, the largest US banks took $11.7 billion in overdraft fees from the accounts of American consumers in 2019.
- The average amount an account is overdrawn is only $20 for three days, yet the average overdraft fee is $35.
- Banks often charge multiple overdraft fees per day, leading to compound fees that can add up to hundreds of dollars.
- Three-quarters of Americans support suspending overdraft fees during the COVID crisis.
- Wells Fargo yesterday announced it had accelerated the launch of a new no-overdraft-fee account. It costs $5 a month.
What’s going on: Varo Money announced it has saved its customers more than $100 million in overdraft fees since August 2019.
- Varo’s No-Fee Overdraft allows qualified customers to overdraw their bank account up to $50 with no fees.
- To qualify for NFO, customers must make at least 5 qualifying debit card purchases each calendar month, receive payroll or government direct deposits of at least $1,000 each calendar month into their Varo Bank Account or Savings Account, and opt in to the program via the Varo mobile app.
- Varo is the first fintech to receive a national banking charter.
“Fees, such as overdraft, are often charged to consumers who can least afford them, a model that Varo is fundamentally opposed to,” said Colin Walsh, founder and CEO of Varo Money.
“Over the past year, Varo customers have been able to benefit from our No-Fee Overdraft – offering a short term bridge to help our customers stretch their finances to the next paycheck.”
Challengers innovate with overdraft: Most of the top challenger banks, like N26, offer some type of overdraft protection.
- Upstart digital banks typically require a direct deposit of a paycheck to quality for free overdraft protection.
- Challenger bank Dave has roots as a personal finance manager to help its users avoid overdraft fees. Premium users get more protection.
- Current, a challenger focused on servicing consumers who live paycheck to paycheck, offers overdraft protection up to $100 for premium checking account users with direct deposit set up.