First-of-its-Kind FDIC Study Looks at Fees and Customer Usage of Bank Overdraft Programs
FDIC Study of Bank Overdraft Programs analyzes the types, characteristics and use of overdraft programs offered by FDIC-supervised banks. The study looks at these programs, their features, the fees imposed, and consumer usage patterns, including the characteristics of customer accounts that tend to incur the highest volume of overdraft fees.
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Noted in the analysis of micro-level data from 39 banks:
- Overdraft fees have APRs ranging from 1067% to 3520%
“Assuming a $27 overdraft fee (the survey median), a customer repaying a $20 POS/debit overdraft in two weeks would incur an APR of 3,520%; a customer repaying a $60 ATM overdraft in two weeks would incur an APR of 1,173%; and a customer repaying a $66 check overdraft in two weeks would incur an APR of 1,067%... rapid repayment of the overdraft amount results in higher APRs, and slower repayment results in lower APRs.”
- Banks operating automated overdraft programs reported a median transaction of $36
“The median dollar amount of all 22.5 million transactions processed by the [28] micro-data banks with automated overdraft programs was $36. POS/debit NSF transactions were not only the most frequent, but also the smallest, with a median dollar value of $20. The median transaction size of an ATM withdrawal and a check that resulted in an NSF transaction were $60 and $66, respectively.”
“Almost half (48.8%) of all reported NSF transactions took place at POS/debit (41%) and ATM (7.85) terminals. Checks accounted for 30.2% of the reported NSF transactions.”
- Customers with 5 or more NSF transactions accrued 93.4% of the total NSF fees reported
“Customers with 5 or more NSF transactions accrued 93.4% of the total NSF fees reported for the 12-month period. Customers with 10 or more NSF transactions accrued 84% of the reported fees. Customer accounts with 20 or more NSF transactions accrued over 68% of the reported fees.”
“Almost 12% of consumer accounts had 1 to 4 NSF transactions, 5% had 5 to 9 NSF transactions, 4% had 10 to 19 NSF transactions, and 4.9% had 20 or more NSF transactions. Almost 9% of consumer accounts of banks reporting data had at least 10 NSF transactions during the 12-month period of analysis.”
Customers with 1 to 4 NSF transactions were charged $64 per year in NSF fees; Customers with 5 to 9 NSF transactions were charged $215 per year in NSF fee; Customers with 10 to 19 NSF transactions were charged $451 per year in NSF fees; Customers with 20 or more NSF transactions were charged $1,610 per year in NSF fees.
- Young adults paid the most in overdraft fees; responsible for the most NSF transactions
“Accounts held by young adults (ages 18 to 25) were the most likely among all age groups to have automated overdraft NSF activity...46.4% incurred NSF activity, compared with 12.2% of accounts held by seniors (over age 62) and 31.9% of accounts held by other adults. Nearly 15% of accounts held by young adults recorded more than ten NSF transactions during the year, compared with 12.1% of adult accounts and 3% of senior accounts. Most NSF transactions made by young adult accounts (61.7%) originated at a POS/debit terminal.”
- Customers in low-income areas were more likely to pay recurrent overdraft charges
“Accounts held by customers in low-income areas (in some areas, median annual income of less than $30,000) were more likely than accounts in higher-income areas to incur overdraft charges…More than 38% of low-income accounts had at least one NSF transaction, compared with 22% of upper-income accounts.”
“Recurrent overdrafts were also more likely the lower the income group. Among low-income customers, 16.7% of accounts had 1 to 4 NSF transactions, and 7.5% had 20 or more NSF transactions. By comparison, 13.9% of accounts held by moderate-income consumers had 1 to 4 NSF transactions, and 6.4% had 20 or more NSF transactions. Consumers in upper-income areas had 1 to 4 NSF transactions in 10.5% of accounts and 20 or more NSF transactions in 3.8% of accounts.”
