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Banks Collect Overdraft Opt-Ins Through Misleading Marketing

April 26, 2011
Overdraft Loans

Survey finds low opt-in rate, high number of misperceptions

Download the complete survey (PDF) >>

When it came to convincing customers to opt in to high-cost overdraft coverage, it was as if the banks rigged the election but still lost the vote.

A Center for Responsible Lending survey indicates that most consumers do not want high-cost overdraft coverage for their checking accounts, and that opt-ins are largely based on aggressive and misleading marketing, rather than clear and accurate information from banks.

Many banks routinely cover any transaction that overdraws a customer's account, including checks, ATM withdrawals, and point-of-sale debit transactions. They charge a fee of about $34 and call it "overdraft protection."

Scare Tactics and Threats of Bounced Checks

When the Federal Reserve Board issued a rule requiring that banks and credit unions obtain customer consent before approving debit card transactions for a fee, many banks conducted aggressive campaigns aimed at getting customers to opt-in. Marketing materials often created the false impression that emergency action was needed on the account. For example:[1]

We Need to Hear From You . . . To keep your account operating smoothly . . . To avoid any interruptions in how we service your account, we need to hear from you.

Your Debit Card May Not Work the Same Way Anymore Even If You Just Made a Deposit.

Please keep in mind that this option [not opting in] may prevent you from completing everyday transactions including Any store and gas station purchase, Emergency home and car repair...Purchases when traveling, Medical or health emergencies.

Banks also conflated the treatment of checks and debit cards, implying that opting in would protect them from bounced check fees:

Save money by avoiding retailers' returned check fees

Relax and protect yourself from the inconvenience of an overdrawn account and retailer fees

The Bounce Overdraft Program was designed to protect you from the cost and embarrassment of having your transactions denied. (emphasis added).

You can protect yourself from the inconvenience of declined transactions and additional fees normally charged to you by merchants for returned items. (emphasis added)

Survey Shows Low Opt-ins, Misperceptions

Even given misleading marketing, only 33 percent of accountholders opted-in to overdraft coverage, and most who did based their decision on information that was deceptive. The survey found:

  • Sixty percent (60%) of consumers who opted in stated that an important reason they did so was to avoid a fee if their debit card was declined. In fact, a declined debit card costs consumers nothing.

  • Sixty-four percent (64%) of consumers who opted in stated that an important reason they did so was to avoid bouncing paper checks. The truth is that the opt-in rules cover only debit card and ATM transactions.

  • For almost half of those who opted in, simply stopping the bank from bombarding them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

These findings strongly suggest that an opt-in rate of 33 percent exaggerates interest in high-cost overdraft coverage for debit card transactions. Rather, the banks succeeded in confusing and wearing down some of their customers to the point that they accepted a product that would ultimately cost them unnecessary, exorbitant fees.

[1] These quotes are from the marketing materials of a representative sample of banks on file with CRL.