Consumers Still Impacted by Excessive Overdraft Fees, Report Finds

The charges can happen on debit transactions, checks, and ATM withdrawals

Consumers Still Impacted by Excessive Overdraft Fees, Report Finds
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December 20, 2016

The Pew Research Center has issued a report finding that consumers are still being impacted by excessive overdraft fees in spite of reforms to the financial services industry.

According to this report, says ConsumerAffairs, these fees can happen on debit transactions, checks, and ATM withdrawals, and the consumer usually has no idea until days afterward. By that time, he or she may have incurred numerous overdraft charges that may reach $35.

"Further, the cost of overdraft programs is borne disproportionately by a small share of financially vulnerable consumers," says the report. "According to research by the Consumer Financial Protection Bureau (CFPB), less than one-fifth of account-holders – those who incur three or more overdrafts per year – pay more than 90% of all overdraft fees."

Although there have been changes in the law, which now requires bank customers to "opt-in" for overdraft coverage programs, the researchers discovered that service charges on deposit accounts—which include overdraft and other fees—have more than doubled even as interest income has dropped over the past thirty years.

The researchers also say that most of the biggest banks in the U.S. that have consumer checking accounts charge customers as much as $35 for every time an overdraft happens.

"Many of the largest U.S. banks with consumer checking accounts fail the meet Pew's recommended Best Practices for overdraft programs," they wrote. "More than 40% of these banks process transactions from largest to smallest by dollar amount, which can reduce the account balance more quickly and result in overdrafts [rather] than other methods, such as posting transaction chronologically."

Pew encouraged regulators to re-visit the ways in which banks administer overdraft fees to ensure that such charges are totally transparent and are designed for the occasional, accidental overdraft.

The Center analyzed the current overdraft policies used by 45 banks. It found that 42 of these banks—instead of declining a customer's purchase—allow the customer to "opt-in" to receiving overdraft coverage through which the bank pays for the purchase in question but charges the customer a fee for doing so.

All 45 banks let customers accrue at least $90 in fees every day, found the study, and many allowed daily fees that are much higher.

The researchers concluded that these practices will continue unless regulators intervene, pointing out that it is obvious that these charges now make up a growing part of banks' revenue.

The best protection against overdraft charges is to refuse to "opt-in" to banks' overdraft coverage. Consumers will still incur a fee when writing a check for more money than is currently in their accounts, but debit purchases will be declined at the point of sale.