A Wall Street Journal analysis shows that customers of the leading banks with branches inside Wal-Mart outlets are amoung America’s hightes payers of bank fees, including fees on overdrafts that customers sometimes take out as substitutes for high-interest “payday” loans. Here are fice things to know about banks in Wal-Mart:
1. Banks are there because that’s where the money is:
Banks in Wal-Mart are part of the retailer’s push to provide a range of services, including financial, to the vast numbers of people coursing through the stores every day. Wal-Mart dropped its own bid for a bank charter in 2007, but it leases space to other banks. Many customers are low- to moderate-income people, who tend to pay the highest service charges. Some banks in Wal-Mart cater to customers who have had banking troubles elsewhere. Wal-Mart also offers its own financial services, often at low cost, including check cashing and a new money-transfer offering.
2. It’s in the fees, not the loans:
The leading banks inside Wal-Marts make most of their money from fees, not from lending. That’s unusual. Of more than 6,700 U.S. banks the Journal examined, only 15 had more income from fees than from loan interest. All five leading banks in Wal-Marts are among those 15.
3. Overdrafts can look a lot like loans:
Customers accrue many of those fees in overdraft-protection plans, which banks say are intended to guard consumers from occasional lapses. Overdraft charges are key income for many banks. But some customers at the top bank in Wal-Mart, Woodforest, use overdraft protection as a cheaper form of payday lending. The effective annual percentage rate interest, or APR, can top 300%, but that’s still lower than the nearly 400% APR that’s typical of a payday loan. Woodforest’s chief executive said he doesn’t view his bank’s overdraft program “to be a payday loan, but we are about helping our customers solve a problem.”
4. Regulators and consumer advocates are taking note:
Regulators in 2005 issued guidance that called overdrafts a form of credit but continued 1960s-era rules that deemed charges on them to be convenience fees—allowing overdrafts to remain outside key credit regulations. The Consumer Financial Protection Bureau has been examining bank overdraft programs since 2012 and released a study last year. Its director said overdrafts can provide consumers with needed funds, but “have the capacity to inflict serious economic harm.” Timing of any regulatory action is unclear.
Overdraft programs shouldn’t be used as payday-lending substitutes, said Rebecca Borné of the Center for Responsible Lending, a consumer-advocacy group. “It’s not illegal per se, but it flies in the face of the whole regulatory regime that’s been set up to allow overdraft fees,” she said.
5. No Harm no foul, say Wal-Mart and some customers:
Wal-Mart said it vets the banks inside its stores to ensure they are in line with its “philosophy of saving customers money.” It has no role in the operation of the banks, which are overseen by federal regulators. A number of customers the Journal contacted said they regularly overdraw their accounts, willingly paying the fees. “I used payday lenders before but they’re more expensive,” said Frank Owens, 38, who opened his Woodforest account in the Cleveland Wal-Mart because of “financial difficulties” at another bank.