The Most Expensive Burger Ever

High-Cost Overdraft Loans are Draining the Bank Accounts of Young Adults


Center for Responsible Lending
September 24, 2007

Millions of college students and other young adults aged 18 to 24 have become unwitting participants in overdraft loans that cost them nearly $1 billion a year in fees, a report released today by the nonprofit research group, Center for Responsible Lending, finds.

The report, "Billion Dollar Deal," says this age group -- which has been dubbed the "plastic generation" because of their reliance on debit and credit cards – pays over $3 in fees for every $1 borrowed in the form of a debit card overdraft. The resulting billion dollar bonanza for lenders -- often on small-purchase items such as a hamburger or coffee -- has been facilitated by universities that in growing numbers are partnering with America's major banks to turn student ID cards into debit/ATM cards.

"Instead of protecting their financial well-being, these banks' overdraft loans are robbing young people of a secure and solid start in their adult lives," said Eric Halperin, director of the Washington, D.C. office of CRL.

Over one hundred universities across the nation have granted a selected bank exclusive marketing privileges on their campuses. Many of those banks automatically enroll their checking-account holders without their consent in overdraft loan programs that can cost a customer hundreds of dollars in a day in cascading overdraft charges.

"That banks no longer discourage overdrawn accounts for the population in general is bad for anyone, but this is especially burdensome for students and entry-level workers," said Leslie Parrish, a CRL senior researcher who is a main author of the report. "They often use their debit cards for small things, not knowing the system is fixed to sting them with fees."

Previous CRL research found that Americans young and old pay $17.5 billion per year in abusive overdraft lending fees and that debit card use is up for everyone. Today's report shows that young adults tend to use their debit cards for just about everything. This means banks are making more small-dollar loans to cover those overdrafts, typically averaging just $10, but charging a fee that's three to four times that amount.

Rep. Carolyn Maloney (D-NY) has offered a legislative solution, "The Consumer Overdraft Protection Fair Practices Act" (HR 946), to curb abusive overdraft fees impacting everyone, including much needed relief for college students.  A mark-up of the legislation is scheduled on Tuesday in the House Financial Services Committee.

Download the report, available at 8 am ET Monday, 9/24/07, at www.responsiblelending.org.

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

###

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.