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Consumers Want Opt-In Choice on Overdraft Coverage

Customers irked by sky-high overdraft fees

March 24, 2009

Financial institutions typically enroll their customers in a system that covers debit card overdrafts and then assesses them an average $34 fee for each transaction, often on the purchase of an item that costs less than the fee itself.

The new survey finds that most people would rather be asked if they want to be in such a program in the first place, not enrolled automatically and expected to opt out later if they don't want the coverage.

"Consumers should be able to decide whether banks should cover shortfalls in the first place," said Leslie Parrish, senior researcher at the Center for Responsible Lending. "Otherwise, they're making high-priced loans that consumers haven't asked for and in many cases don't even want."

The Federal Reserve Board currently taking comments on two alternative proposals aimed at giving consumers better protection against abuses in unauthorized overdraft fees.

The better of the two, as the Center for Responsible Lending sees it, would require banks to obtain permission from customers before charging them overdraft fees on ATM and certain debit card transactions. Though broader protections would still be needed, this opt-in alternative would begin to give consumers a true choice about when and how they are assessed charges and fees for short-term credit.

The other -- the opt-out alternative -- would do little to change current practices, which amount to a system of short-term loans that strip nearly $17.5 billion from consumers annually.

The survey, conducted by market research firm Macro International, Inc., found that 2 out of 3 consumers prefer being asked if they want to opt in to an overdraft program, rather than being enrolled automatically.

Specifically, the survey confirms that a majority of consumers -- 83 percent -- want to choose whether their bank account will be given overdraft protection on debit card purchases and ATM transactions.

It also finds that 80 percent prefer the opt-in alternative, namely, that their bank or credit union ask their permission before enrolling them in an overdraft program.

This new survey indicates that financial institutions should be required to get explicit permission before enrolling bank account holders in an overdraft system. Being given the real choice of whether to opt in is an essential step to providing account holders real protection.

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