The Truth about Overdraft Fees – Part 1
In two recently published reports, a pair of trusted financial institutions studied how American consumers are affected by bank overdraft and NSF fees and how banks are becoming increasingly reliant on this $37 billion industry.
An FDIC study of bank overdraft programs followed the trends associated with the use of overdraft and non-sufficient fund (NSF) fees in 39 accredited banks in the U.S. The numbers are astounding. According to the study, nearly 22.5 million overdraft transactions were recorded in the past year. The average fee associated with each incident was $27 per infraction.
While one overdraft incident won’t necessarily put a consumer in the poor house, multiple infractions can add up quickly. Nearly 12% of consumer accounts recorded one to four overdraft fees in the past year, costing the account owners an average of $64. Even more astounding are the 5% of consumers that recorded more than 20 fees, resulting in over $1,600 in fees annually.
These reoccurring fees cause consumers to fall into an overdraft cycle, whereby the more penalties that the customer incurs, the less likely he or she is to have sufficient funds available in their account, which results in even more and higher penalties.
The report found that young adults (ages 18 to 25) were the most likely to accrue overdraft penalties, nearly 50% of which recorded at least one overdraft transaction in the past year. Nearly 15% of these consumers accrued more than 10 penalties in the same time frame.
Customers in low-income areas were also more likely to accrue overdraft penalties and more of them. 38% of low-income accounts (those customers making less than $30,000 annually) incurred at least one overdraft transaction in the past year, compared to only 22% of upper-income accounts. These customers also receive more violations, with 7.5% recording 20 or more NSF fees, compared to only 3.8% of upper-income clients.
This article is part of a two-part series
