In fact, a recent Pew Charitable Trusts study found more than 50 percent of consumers who reported paying an overdraft fee in 2013 didn’t recall opting into overdraft coverage or knowing how much an overdraft would cost them.
Younger, lower-income, and non-white consumers were more likely to pay an overdraft penalty than other FI customers. Age, in particular, played a significant role with a 25-year-old being 133 percent more likely than a 65-year-old to incur an overdraft fee.
Interestingly, just 10 percent of the population overdrew a checking account in 2013, slightly fewer than those in Pew’s 2012 report.
Since 2010, federal regulations have dictated FIs gain consent from customers before they process overdrafts and charge overdraft fees. Currently, consumers are given multiple disclosures, as well as written confirmation of their options, regarding their personal use of overdraft protection and the cost of that protection.
"Overdraft protection is a matter of informed consumer choice, and those who choose to use it understand and value it," Nessa Feddis, deputy chief counsel of consumer protection at the American Bankers Association said in a recent American Banker article. She added, "Consumers who opt in for debit card overdraft protection know the fees and can opt out at any time."
Even so, Pew is urging the Consumer Financial Protection Bureau (CFPB) to require FIs to do more to protect consumers, including the following:
- Provide consumers with clear and uniform pricing information for overdraft options
- Make overdraft fees reasonable and more in line with the FI's costs to cover the overdraft
- Prohibit the reordering of transactions to maximize overdraft fees
The CFPB is "researching and considering whether rulemaking is warranted in the areas of payday and deposit advance products, as well as consumer overdraft products." In the meantime, FI leaders may want to examine their own practices for opportunities to improve communication and customer comfort with overdrafts.
In light of Pew’s research and appeal to the CFPB, it’s likely new overdraft protection regulation will soon be on the horizon. Watch for future blog posts on this topic as new information becomes available.