· Majority of debit card overdraft fees incurred on transactions of $24 or less: When consumers use their cards, it is typically for smaller purchases than when they write checks or use a bank teller. Consumers who opt in for overdraft services incur the majority of their debit card overdraft fees on transactions of $24 or less. Most overdraft transactions for which a fee is charged -- including debit overdraft transactions -- are $50 or less.
· More than half of consumers pay back negative balances within three days: Most consumers who overdraw on their accounts bring their accounts to a positive balance quickly. More than half become positive within three days; and more than 75 percent become positive within a week.
· Consumers pay high costs for overdraft "advances:" Overdraft fees can be an expensive way to manage a checking account. The median overdraft fee at the banks studied was $34. If a consumer were to borrow $24 for three days and pay a $34 finance charge, such a loan would carry a 17,000 percent APR.
· Nearly one in five opted-in consumers overdrafts more than ten times per year: The study found that 18 percent of opted-in accounts overdraft more than ten times per year, compared to 6 percent for non-opted-in accounts. In addition, opted-in accounts are nearly twice as likely to have at least one overdraft transaction per year. Not all of these overdrafts incur overdraft fees, but many do.
· Opted-in consumers pay seven times more in overdraft and NSF fees per year: Consumers who opt-in for overdraft fee services are paying significantly more for their checking accounts than non-opted-in consumers – about seven times more in overdraft and NSF fees. On average, opted-in accounts pay almost $260 per year in overdraft and NSF fees compared to just over $35 for non-opted-in accounts.
The study is based on data from a set of large banks supervised by the CFPB. The CFPB examined account-level and transaction-level data – which did not contain consumers’ directly identifying personal information – to better understand how overdraft practices affect consumers. The study reflects a significant portion of U.S. consumer checking accounts. The study was supplemented by other research and responses to a CFPB Request for Information issued to the public in February 2012.
A report by the CFPB last year raised concerns about whether overdraft costs can be anticipated and avoided by consumers. The report showed big differences across financial institutions when it comes to overdraft coverage on debit card transactions and ATM withdrawals, drawing into question how banks sell the overdraft account feature. The report also found that consumers who opt in end up with more costs and involuntary account closures.
The CFPB reports are intended to further the Bureau’s objective of providing an evidence-based perspective on consumer financial markets, consumer behavior, and regulations to inform the public discourse. The CFPB plans further studies on how overdraft works and how it is affecting consumers. The Bureau is also weighing what consumer protections are necessary for overdraft and related services.
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