Interest rates

Lawmakers Grill Big Banks on Zelle, Interest Rates and Overdraft Fees

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The heads of America’s largest banks, known as “megabanks,” testified before Congress this week.

Alex Wong/Getty Images

Lawmakers wrapped up two days of annual banking oversight hearings on Thursday, during which they quizzed the chief executives of seven major banks on topics ranging from the state of the economy to diversity initiatives and payment scams. electronics.

CEOs who appeared before the House Financial Services Committee and the Senate Banking Committee were Andy Cecere of

American bank
,

Guillaume Demchak from

PNC Financial Services Group
,

Jamie Dimon from

JPMorgan Chase & Co.
,

Jane Fraser of

Citigroup
,

Brian Moynihan from

Bank of America
,

William Rogers Jr of

Truist Financial Corporation
,

and Charles Scharf of

Wells Fargo and company
.

The hearings came as the Federal Reserve raised interest rates for the fifth time this year in a bid to fight inflation, and bank leaders generally took a pessimistic view of the months ahead. Fraser said the country was likely to have a “very difficult year” and Dimon repeatedly warned that stagflation, the rare combination of slowing growth and high inflation, would be the worst outcome for the country. economy.

Here are three takeaways for consumers of the procedure:

Bank interest rates are rising

As the Federal Reserve raises its benchmark federal funds rate, banks are raising the interest rates they charge borrowers on loans. Yet the rates the big banks are offering depositors on savings accounts have barely budged, increasing the money they make on the gap between the two.

“One of the only silver linings in a rising interest rate environment is that savers are supposed to be rewarded for their savings,” said Rep. Michael San Nicolas (D., Guam), who asked banks what rates they were currently offering and when they planned to increase them.

Across the institutions represented, rates ranged from 0.05% on basic savings accounts to nearly 3% on some CDs. “We expect them to probably go up soon,” Dimon said.

Even if the big banks gradually increase their rates, they won’t approach those offered by online-only banks, whose lower overhead and increased competition contribute to rates much higher than those offered by the big traditional banks. You can get rates of around 2% on high yield online savings accounts today. Many consumers have two accounts, one at a major bank which they use to receive their paycheck and pay their bills, and the other at an online bank only to take advantage of the higher rates.

Overdraft fees go down

Lawmakers have also pressured banks over overdraft and insufficient funds fees, which generated about $15.47 billion in 2019, according to the Consumer Financial Protection Bureau. These fees are paid disproportionately by low-income consumers, who could find themselves in increasingly dire financial straits in the coming months as inflation persists and the economy slows.

This summer, Citigroup became the first megabank to completely eliminate overdraft fees. In May, Bank of America reduced overdraft fees from $35 to $10. Wells Fargo maintains a $35 overdraft fee on most consumer checking accounts, but offers a no-fee product.

Consumers should beware of Zelle

Many lawmakers have expressed concern that consumers are taking advantage of Zelle, the peer-to-peer payment system jointly owned by six of the seven banks present. Senator Elizabeth Warren urged bank executives to report on the number of customers reporting fraud through Zelle, as opposed to the number of fraudulent transactions banks report on their own. Bank officials said they would provide those numbers by the end of Thursday. “We’ll have it by the end of the day, when nobody’s around to talk about it,” the Massachusetts Democrat replied.

Bank executives said they typically reimburse customers for any unauthorized transactions on the platform. Authorized transactions — where a customer can be tricked into sending money for a good or service that is never delivered — are harder to monitor, they said. Banks often send confirmation alerts, asking the customer to confirm that they know the intended recipient and want to send them money, but they do not reimburse customers for losses on authorized transactions.

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