These two Texas banks stand out as 'overdraft giants.' Here's why.

Those service charges,which made up 30.2 percent of operating revenue at First National Bank Texas and 26 percent at Woodforest, are far in excess of the industry norm and rank them first and second in the nation. Just eight banks in the nation saw service charges and fees make up more than 10 percent of their operating revenue last year, according to a February analysis from S&P Global. Neither Woodforest nor First National Bank Texas immediately responded to requests for comment. Both have national charters and operate in multiple states. First National Bank Texas also brands itself as First Convenience Bank. Related: This Houston bank is led by women and is the first of its kind As Woodforest and First National raked in millions in overdraft fees, many of America's largest banks moved to reduce or scrap the charges, which consumer advocates have long said are predatory and particularly harmful to lower-income customer who incur such fees when they're already standing on the edge of a cliff, according to social justice advocates and financial analysts. "Once those fees hit accounts, the communities we serve bottom out," said Eric Goodie, senior vice president for the Houston Area Urban League. And overdraft fees can have lasting implications, he said, for mental wellness as well as financial health. "Studies reflect that it's difficult, often impossible, for anyone to fix their financial status once they've gotten swept into predatory lending and unending bank fee cycles," he said. "These fees continue to create barriers to financial freedom and generational wealth building. We also see that historically for many Black and Latino people in the communities we serve, rising fees make traditional banking less attractive." In Houston, more than 20 percent of Latinos and almost 15 percent of Blacks have no bank accounts, he added. "Overdraft giants" such as Woodforest and First National Bank Texas essentially target consumers vulnerable to getting hit with fees by opening locations in lower-income areas and offering products designed for people with a history of overdrafts or other issues, said Aaron Klein, senior fellow at the Brookings Institution, a Washington, D.C., nonprofit public policy group. Woodforest, for example, is partnered with Walmart and offers "second chance" checking accounts for people who have been denied accounts at other banks or credit unions due to their financial records. First National's First Convenience brand is found in Walmart, Fiesta Mart and other grocery stores throughout the Houston area. Once the banks sign up these customers, Klein said, they'll "squeeze them for as many overdrafts as (they) can, hoping that they'll stay put" due to lack of available alternatives or the inconvenience of changing banks, among other reasons. He highlighted a line from the fine print in Woodforest's account disclosures: "We may determine, at our discretion, the order that we process and post credit and debit items." If larger debits are processed first, customers can be tipped into the red and dinged with multiple charges. That's not a coincidence, Klein said. It's effectively the business model for these two banks and a handful of others. In 2019, for example, Woodforest collected $155.4 million in overdraft fees, or $134.76 per account. By contrast, Citigroup, the third-largest bank in America, collected $109 million in overdraft revenue that year, or about $5.64 per account. Meanwhile, overdraft fee income collected by U.S. banks in 2022 declined "drastically" to $1.55 billion compared with $2.34 billion a year earlier, according to the S&P Global report. Related: Building financial identity, and community, at Houston's Majority banking service Texas may be a fruitful location for banks that embrace the "overdraft giant" business model. The state has long had a disproportionate number of people without access to banking services. According to a 2020 study from the the Federal Deposit Insurance Corp., 7.7 percent of Texas households did not have bank accounts in 2019 compared with 5.4 percent nationwide. Goodie, of the Houston Area Urban League, said there is a role for banks such as Woodforest and First National Bank Texas, particularly for individuals who have been denied access to traditional banks, but that it shouldn't come with such high fees. "When faced with financial hardships and high overdraft fees, our clients are sometimes forced to sign up for predatory services to receive quick cash," Goodie said. "There's a real opportunity for banks to break the cycle of generational lack of trust and inclusion, particularly for people of color," he continued. "Overall, Black and Latino consumers deserve safe account standards, discipline, and accountability from their preferred financial institutions." Overdraft fees have emerged as a focal point for policymakers since the COVID-19 pandemic, and some big banks have reduced such fees. Pittsburgh-headquartered PNC, for example, has taken steps to warn customers of potential overdrafts and offers a 24-hour grace period to cover account deficits. Furthermore, overdraft fees are capped at one per day. As a result, PNC's overdraft fee revenue has dropped considerably, CEO Bill Demchak said in an interview last month. "It was an indefensible revenue stream," he said. Klein, a onetime deputy assistant secretary for economic policy at the Department of Treasury, says the "overdraft giant" business model needs more scrutiny. "They're not banks. They're check cashers with a bank charter," said Klein. "And the fact that America's bank regulators allow these institutions to operate with this business model is a dereliction of duty."