Overdraft Fees: Quick Facts

 These findings were obtained primarily from CRL research on overdraft loans. 

Total costs vs. funds extended:

  • Total cost per year consumers pay in overdraft fees: $17.5 billion.
  • Total funds extended by institutions to cover consumers' overdrafts: $15.8 billion. 

Mostly debit cards and small transactions:

  • The most common trigger of overdraft fees are debit card transactions.Together, debit card and ATM overdrafts account for 46% of all overdraft fees.
  •  Most debit card transactions that trigger overdrafts are small.  Average transaction: $20. Average fee charged: $34.

Consumers want choice:

  • 88% of consumers want a choice about overdraft coverage on their account.
  • Of the overwhelming majority of consumers who want a choice about overdraft coverage, 80% want opt-in instead of opt-out for debit card and ATM transactions.
  • 80% of consumers surveyed would rather have their debit card transaction denied than have it covered in exchange for an overdraft fee.

Institutions could decline transactions at terminal for no fee, but most don't:

  • As recently at 2004, 80 percent of banks still declined debit card transactions without charging a fee.
  • Today, 81% of banks surveyed by the FDIC allow overdrafts at ATM machines and debit card terminals, and only 11% warn consumers before transaction is complete.

Repeat overdrafts:

  • 16% of people who overdraft pay 71% of overdraft fees.
  • People who overdraft repeatedly are more likely than the general population to be lower income, single, non-white, and renters.

Americans aged 55 and over:

  • Total cost: Americans aged 55 and over pay $4.5 billion in overdraft fees annually.
  • Cost for people dependent on Social Security: Individuals heavily dependent on Social Security pay nearly $1 billion in overdraft fees annually.
  • Debit card use: Though older Americans use debit cards less than younger Americans, debit card purchases are the most frequent trigger of overdrafts for people aged 55 and over.
  • Small transactions: People aged 55 and over pay $1.65 in overdraft fees for every $1 advanced by the banks in overdraft loans.

Younger Americans:

  • Total cost: Americans aged 18-24 pay nearly $1 billion in overdraft fees annually.
  • Debit card use: Because they are more likely to use a debit card for small transactions than older adults, they pay $3 in fees for every $1 borrowed for debit card overdrafts. 

Financial institutions' practices and impact on fee income:

  • As recently at 2004, 80 percent of banks still declined debit card transactions without charging a fee. Today, 81% of banks surveyed by the FDIC allow overdrafts at ATM machines and debit card terminals. Only 11% of these banks surveyed notify consumers that they are about to overdraw their account before the transaction is completed.
  • From 2003-2005, the number of financial institutions using vendor-based automated overdraft loan programs grew 80% to a total of approximately 3,500 institutions.  Institutions pay consultants for specialized proprietary software and implementation strategies to increase overdraft fees. The consulting firms publicly tout the dramatic increases in fee revenue their programs generate. For example:
    • Impact Financial Services' website: "Virtually all of our clients have increased the NSF fee income from 50-150% or more (with 100% or more being the norm)." [1]
    • Moebs $ervices, Inc.'s website: "Typical results after one year of using No-Bounce: overall fee income is increased by 200%."[2]
  • Some of the consultants even offer software implementation and employee training at "no risk," charging the client only a percentage of the increased fee revenue the software generates. [3]  They can offer clients this no-risk arrangement with confidence because their turnkey systems accomplish what they promise. Client testimonials on the firms'websites back up the consultants' claims:
    • Impact Financial Services' client: "If I had two more products like the IMPACT Automated Overdraft Privilege, I could quit making loans altogether. The fee income increase has been great."[4]
    • 􀂃 Strunk & Associates' client: "Strunk forecasted that we would double our revenue and that is what we did." [5]

       

[1] https://impactfinancial.com/portal/AboutIFS/FromPresidentsDesk/tabid/66/Default.aspx (last visited Mar. 8, 2009).

[2] http://www.moebs.com/Default.aspx?tabid=102 (last visited Mar. 8, 2009).

[3] See, e.g., Impact Financial Services' website: "Since we don't charge up-front or implementation costs and our fee is a percentage of the increased NSF income you earn from the service, you have no financial risk! We become partners with a common goal—your success." https://impactfinancial.com/portal/WhatisIOP/HowTheProgramWorks/tabid/65/Default.aspx (last visited Mar. 8, 2009).

[4] https://impactfinancial.com/portal/Endorsements/ClientTestimonials/tabid/70/Default.aspx (last visited Mar. 8,2009).

[5] http://www.globenetix.com/custom.asp?id=128274&page=13 (last visited Mar. 8, 2009).