Consumer advocates are sounding the alarm on a practice they call a “racket,” and it’s hitting customers right where they shop: at Walmart. The Center for Responsible Lending (CRL) minces no words when describing overdraft protection, stating plainly, “overdraft ‘protection’ is a racket; not a service.” They highlight the core issue: hidden fees are draining billions from Americans annually.
Transaction shuffling and multiple, exorbitant fees for small shortfalls in their checking accounts cost Americans billions per year in unfair fees. More than half of Americans are now living paycheck-to-paycheck, making a majority of U.S. families vulnerable to bank overdraft practices that are exceedingly misnamed “overdraft protection.”
This so-called “protection” can quickly turn into a predatory cycle, mirroring the dangers of payday loans. Instead of high interest rates, consumers are hit with steep fees, trapping them in a debt spiral they struggle to escape. While devastating for individuals, these overdraft products are incredibly profitable for banks. A Wall Street Journal investigation revealed a startling truth: a significant portion of some banks’ income, relative to their total deposits, comes directly from overdraft and similar fees. And where are many of these high-fee banks located? Inside your local Walmart.
According to the Wall Street Journal, the five banks with the most branches inside Walmart stores were also among the top 10 U.S. banks in 2013 when ranked by fee income as a percentage of deposits. This raises serious concerns for Walmart shoppers who utilize Walmart Money Services, particularly those living paycheck to paycheck. These are precisely the individuals most susceptible to the lure of high-cost credit disguised as overdraft protection.
The convenience of Walmart money services, coupled with the store’s reputation for low prices, might create a dangerous misperception. Customers may mistakenly believe that the fees associated with these banking services are also a bargain. However, as the Wall Street Journal‘s profile of a customer in Cleveland demonstrated, these fees can quickly escalate, rivaling the exorbitant costs of payday loans. When questioned about these practices, a Walmart spokesperson told the Wall Street Journal that the company employs a “very thorough process” to vet banks leasing space in their stores, ensuring they align with Walmart’s commitment to “saving customers money.”
Yet, the reality paints a different picture. The Center for Responsible Lending cautions:
Many financial institutions use abusive overdraft programs to unfairly drain their customers’ checking accounts, putting consumers on a treadmill of high-cost credit. Abusive overdraft programs drive consumers out of the banking system; indeed, they are the leading reason consumers lose their checking accounts. Overdraft programs also crowd out better products by removing incentives for banks to offer lower-cost, manageable ways to deal with financial shortfalls.
The Consumer Financial Protection Bureau (CFPB) has also taken notice. Their study highlighted “wide variations across financial institutions regarding the costs and risks of opting in to overdraft coverage,” and they are actively considering new regulations to address these problematic products. In the meantime, the message for consumers using Walmart money services and banking at Walmart locations is clear: buyer beware. Understanding the true cost of overdraft protection is crucial to avoid falling into a costly debt trap while managing your finances at Walmart.
