CRL's Research is Clear:

Denials Preferred Over Unauthorized Fees


Center for Responsible Lending
June 25, 2008

Both CRL and the American Banker's Association have surveyed accountholders regarding overdraft preferences.  CRL's research found that an overwhelming percentage of consumers (80%) would rather have their debit card transaction denied at the counter than be charged an overdraft fee.  The ABA's survey concludes most Americans want unexpected overdrafts to be covered for a fee.

CRL and the ABA got different answers because they asked the question differently.  The ABA's survey question ignored the distinction between paper checks – which, when denied, typically cost consumers a "non-sufficient funds" fee – and debit card transactions – which cost consumers zero when denied.  The ABA also presented only two options to consumers:  to have a transaction covered for a fee or to have it denied.  Its question ignored the fact that many Americans have dramatically cheaper alternatives to fee-based overdraft programs that they just aren't aware of, including overdraft lines of credit and automatic links to savings accounts. 

The ABA downplayed our research finding that older Americans pay $4.5 billion per year for unauthorized overdrafts.  If the ABA's findings are correct – that 91 percent of its respondents aged 55 and older did not pay overdraft fees – then the 9 percent of older Americans who do pay overdraft fees pay an average of $708 per year in such charges.  That's three-fourths of a Social Security check, which is a large percentage of yearly income for the lower-income group paying most of these fees.

The two surveys were similar in one way:  Both showed that a core group of lower income consumers pays the majority of overdraft fees.  CRL found that 16 percent of overdrafters pay 71 percent of all unauthorized overdraft fees, and lower-income people are hit most frequently – suggesting that banks' systems are causing a cycle of debt for these folks.  Bankers say overdraft fees are meant to deter consumers from spending more than they have in their account.  But deterrence can be achieved without driving consumers into a debt trap.  If bankers were sincere in their claim that they want to deter overdrafting, they could do so by simply denying such transactions at the point of sale.  This is what 80 percent of banks did as recently as 2004 and still have the technology to do.  What's driving the escalating use of fees isn't the goal of deterrence but, rather, the goal of boosting profits at the expense of rank and file customers.

Read CRL's survey results.

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Sharon Reuss at (919) 313-8527 or sharon.reuss@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.