As two trends collide—increasing use of debit cards among young adults and increasing use of abusive overdraft practices among major banks—college students and young workers just starting their adult lives are paying a high price.
At least one hundred universities are contributing to this problem by selecting a single bank and granting them exclusive marketing privileges on campus. Such an arrangement might, for example, involve providing students with an official identification card that doubles as a debit card backed by the university's partner bank. When the partner bank uses abusive overdraft practices, these deals come at the expense of the students' financial well-being.
For reports released earlier this year, the Center for Responsible Lending analyzed a large, commercially-available database of personal bank account transactions. We found that abusive overdraft lending practices are costing consumers $17.5 billion per year in fees for only $15.8 billion in loans, and that banks are routinely authorizing small overdrafts and charging $34 fees without warning.
In this report, we focus on the youngest account holders in the same database, those 18 to 24 years old, and find that:
- Banks use abusive overdraft loans to collect nearly $1 billion per year in fees from young adults who earn relatively little as students or new members of the workforce;
- Debit card point-of-sale (POS) transactions are the leading cause of overdraft loans for young adults;
- Young adults pay more than $3 for every $1 borrowed for debit card overdrafts.