FDIC bank overdraft study results

The FDIC bank overdraft study was published in November 2008. Read more about the study here. The study population was 1,171 FDIC-supervised institutions scheduled for on-site examinations from May through December 2007 and FDIC-supervised institutions with at least $5 billion in assets. The survey was administered to a stratified, random sample of 462 institutions from the study population.

• Eighty-six percent of banks operated at least one formal overdraft program -- either automated, linked accounts, or lines of credit.

• Most banks, 75.1 percent, automatically enrolled customers in automated overdraft programs, although customers were usually permitted to affirmatively opt out of the program.

• By contrast, 94.7 percent of banks treated linked-account programs as opt-in programs, requiring that customers affirmatively request to have accounts linked.

• Automated overdraft usage fees assessed by banks ranged from $10 to $38, and the median fee assessed was $27. About one-fourth, 24.6 percent, of the surveyed banks also assessed fees on accounts that remained in negative balance status in the form of flat fees or interest charged on a percentage basis.

• Fees assessed for linked-account and overdraft line of credit programs were typically lower than for automated overdraft programs. Almost half (49.9 percent) of the banks with linked-account programs charged no explicit fees for the service. The most common fee associated with linked-account programs was a transfer fee; when charged, the median transfer fee was $5. The primary cost associated with overdraft line of credit programs was the interest charged on funds advanced, usually accruing at an annual percentage rate of around 18 percent.

• At least 81 percent of banks operating automated programs allowed overdrafts to take place at ATMs and point-of-sale (POS)/debit transactions. However, most banks whose automated overdraft programs covered ATM and POS/debit transactions informed customers of an NSF (non-sufficient funds) only after the transaction had been completed (88.8 percent of banks for POS/debit transactions and 70.7 percent of banks for ATM transactions. A minority of banks (7.9 percent for POS/debit transactions and 23.5 percent for ATMs) did inform consumers that funds were insufficient before transactions were completed, offering the customers an opportunity to cancel the NSF transaction and avoid a fee.

• A significant share of banks (24.7 percent of all surveyed banks and 53.7 percent of large banks) batched processed overdraft transactions by size, from largest to smallest, which can increase the number of overdrafts.

• The (surveyed) banks earned an estimated $1.97 billion in NSF-related fees in 2006, representing 74 percent of the $2.66 billion in service charges on deposit accounts reported by these banks. Banks operating automated overdraft programs earned $1.77 billion in NSF fees in 2006, accounting for 90 percent of total NSF-related fee income earned by the entire study population.

• Consumer complaints about automated overdraft programs were received by 12.5 percent of the banks that operated these programs, compared with consumer complaints from less than 1 percent of banks offering linked-account programs and 1.5 percent of banks offering line-of-credit programs.

Source: FDIC