Banks located within Walmart stores are unique in a few regards. They often cater to lower-income patrons more frequently than normal, often to those who are considered “risky” prospects who have heretofore been locked out of traditional banking. They also are among America’s top fee collectors. According to The Wall Street Journal, the five banks with the most Walmart branches were among the top 10 U.S. banks in fee income as a percentage of deposits in 2013.
Further, while most banks draw a majority of their income from loans, Walmart-housed banks tend to draw more income from fees. Among the 6,766 banks the Journal looked into, just 15 had fee income higher than loan income–and in that 15 were the top 5 banks operating through Walmart.
The fee income draw from a willingness on the banks part to let patrons intentionally overdraw–by as much as $500– for a fee, usually around $30 to be repaid within two weeks (or whenever their next paycheck deposit is). If overdraft fees were treated as though it were interest on a loan it would represent an APR of over 300%–which is daunting but still below what many pay day lenders offer on a loan of a similar size.
Bank officials also note that high-risky customers are–risky, and do at times overdraft and disappear. The pricing of the fees reflects that risk–though it does not fully explain why some banks, where overdraft financing has become more common, have increased overdraft from $2.50 to $40 in the span of less than a year
The U.S. Consumer Financial Protection Bureau is studying whether overdraft fees are being applied appropriately, noting that though they allow consumers some financial flexibility, the also have a potential to inflict serious harm.
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