The Checkout

On a Fixed Income and Paying for Overdraft Protection?

Nancy Trejos

Here's an interesting twist to a topic I wrote about on this blog not too long ago. It's about overdraft protection. When you overdraw your account, many banking institutions will cover that payment -- for a fee. Often it happens without your permission.

According to the Center for Responsible Lending, Americans 55 and older pay $4.5 billion in fees annually for overdraft loans they haven't asked for and typically don't want. Nearly $1 billion of that amount is taken from people who are heavily dependent on Social Security income.

Typically, the fee is $1.65 for every $1 advanced. Unauthorized overdrafts cost Americans $17.5 billion in fees for $15.8 billion advanced, the report said. And even though people at or near retirement age don't use plastic as much, they are still getting hit quite hard, the report found.

"Our research found that 84 percent of Americans 55 and over -- many of whom have successfully managed checking accounts their entire adult lives -- would prefer to choose whether they have overdraft coverage," said Leslie Parrish, senior researcher, who co-authored the report with Peter Smith.

The Federal Reserve is already looking into the overdraft fee issue.

Along with two other banking regulators -- the National Credit Union Administration and the Office of Thrift Supervision -- the Fed has proposed that all banks, credit unions, and other financial institutions give their customers the right to opt out of overdraft protection. The banks would also have to disclose on periodic statements the total amount assessed in overdraft and returned item fees. Right now, only those institutions that promote or advertise their overdraft protection programs have to do that.

But the authors of this study say that does not go far enough.

"The Fed must address these excessive bank fees and end this abuse of long-time and loyal customers, many on fixed incomes," Parrish said.

By Nancy Trejos |  June 23, 2008; 2:20 PM ET Nancy Trejos
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"Typically, the fee is $1.65 for every $1 advanced." A $330 fee for $200 advanced?
Please clarify.


Posted by: Jphn Sanderson | June 23, 2008 3:00 PM

Yes, unfortunately the median overdraft fee for older adults is $33 and the median overdraft loan - the amount of funds advanced by the bank to cover overdrafts - is $19.95. That's a $33 fee for a $20 loan and does indeed come to $1.65 in fees for every dollar advanced. Details are here:

Carol Hammerstein
Center for Responsible Lending

Posted by: Carol Hammerstein | June 24, 2008 10:48 AM

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