KeyCorp – Racial Impact of Overdraft Policies and Practices (2021)

Outcome: Successfully withdrawn following a commitment from the company to analyze overdraft policies and practices with a racial impact lens.

WHEREAS: KeyBank charges a flat $33 fee when it pays a customer’s check, ATM withdrawal, or certain other electronic transactions, even though the customer’s account lacks sufficient funds to cover the charges (if the customer opts-in). In 2019, this resulted in KeyBank collecting over $148 million in overdraft/NSF fees. This represented over 7% of its non-interest income and 44% of its service charge income.

According to 2018 and 2020 Center for Responsible Lending reports:

  • account holders incurring large numbers of overdraft fees are more often low-income, single, non-white, and renters;
  • customers often pay more in overdraft fees than the overage amount; and 
  • many consumers who opted into fee-based overdraft coverage for debit card transactions after the 2010 change to the Federal Reserve’s Regulation E did so as a result of aggressive or deceptive marketing. 

The CFPB found the majority of customers that frequently overdraft are more financially vulnerable than those who are not. Pew research has shown approximate 70% of heavy overdrafters earn less than $50,000/year. A 2020 Bankrate survey found that Blacks and Hispanics reported facing higher monthly fees, including overdraft fees, than white customers typically do.

KeyBank’s flat overdraft/NSF fee does not appear to bear any relationship to the cost or risk of covering an overdraft, which casts doubt on its reasons for imposing the fee and raises reputational risks. There may be a tension if a bank sees the fee as a desirable source of revenue while also justifying it as a way to penalize certain spending behaviors.

The flat fee means that almost regardless of the size of the overdraft, the fee is the same – e.g. the cost to the customer is the same whether she is $50 over her balance or $500 over her balance. This is concerning since a 2014 CFPB study found customers were paying a median overdraft fee of $34 for debit card payments of $24 or less. The Washington Post has reported that this is the equivalent of a loan with a 17,000 percent annual rate. 

In comparison, Citibank does not charge overdraft fees for point of sale or ATM withdrawals.

To address these concerns, U.S. Senator Cory Booker has introduced the Stop Overdraft Profiteering Act, which would prohibit banks from imposing overdraft fees on debit card or ATM transactions. Furthermore, it would limit the number of overdraft fees that could be levied on check-based transactions and includes nondiscrimination provisions.

In the wake of the Black Lives Matters protests, there has been increasing attention paid to the ways in which systemic racism exists in many institutions, including banks, and their impacts on society.

RESOLVED: Shareholders request the Board complete a report to shareholders (prepared at reasonable cost, omitting proprietary/confidential information, and within a reasonable time) evaluating the racial impacts that its overdraft policies and practices have on Black and other racial minority customers.


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