Overdraft protection has become Washington’s latest punching bag. Sens. Elizabeth Warren (D-Mass.), Bernie Sanders (I-Vt.), and Richard Blumenthal (D-Conn.) are again criticizing banks, credit unions and financial service providers for charging what they call “predatory” overdraft and non-sufficient funds fees. In their telling, these fees are little more than “junk,” a cynical profit scheme designed to trap the poor in a cycle of debt.

That narrative ignores what overdraft protection really is: a specialized form of short-term, high-risk loan. Like any high-risk loan, it comes at a higher price.

When a consumer overdraws his or her account, the bank instantly extends unsecured credit with no collateral, no underwriting, and no repayment guarantee. The institution assumes risk on the spot. This is not free. It is risk-based lending at its purest form — an instant loan made in real-time to cover groceries, gas or rent. The price is higher precisely because the risk is higher.

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