Are consumers knowingly consenting to bank overdraft coverage, or are they signing up for a potentially costly product they don't really understand?
That provocative question introduces "Overdraft America: Confusion and Concerns About Bank Practices," a new six-page fact sheet about a survey commissioned by the Pew Safe Checking in the Electronic Age Project.
The survey found that 18 percent of consumers paid a bank or credit union overdraft penalty fee in the last year. Many of them didn't know their bank offered overdraft coverage until they incurred the penalty, and many also didn't know some banks reorder deposits and withdrawals to increase such fees, the report said.
The report noted that respondents who'd overdrafted were highly concerned about bank practices, including the amount of the fee, additional penalty fees charged if the overdraft wasn't covered on time and transaction reordering tactics.
Forty percent said they thought the terms and conditions of their financial institution's overdraft policies were confusing, and more than 60 percent of those who'd incurred overdraft fees believed the service hurt more than it helped. Most were surprised when they incurred a fee because they didn't know their bank offered overdraft coverage or they discovered the fee only after they received their next statement.
"It could be days or weeks before a consumer receives this notification, potentially leading to compounded overdraft fees. Consumer dissatisfaction with overdraft procedures and fees is driving many to leave their financial institution. In fact, about one-third of respondents reported that they had closed their checking account due to overdraft fees," the report said.
That's a big deal because, according to the report, a checking account is the most widely used financial services product in the U.S. That means a vast swathe of the population is potentially exposed to overdraft fees -- but has little understanding of this option.
Moreover, 90 percent of the respondents said the overdraft was inadvertent, and 75 percent said they'd prefer that their transaction be declined rather than processed with a subsequent $35 charge.
"It's important to ensure," the report stated, "that checking accounts don't lead to financial distress because of hidden, unexpected and costly fees like overdrafts."
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