More than a quarter of consumers say someone in their household was charged an overdraft fee or NSF fee within the past year, even though many banks and credit unions have dropped the fees, the federal consumer financial protection agency said Tuesday.
Additionally, according to the Consumer Financial Protection Bureau (CFPB), in most cases consumers did not expect the charges. The agency said that its most recent survey found that only 22% of households expected their most recent overdraft.
“Many consumers who were charged overdraft fees had access to a cheaper alternative, such as available credit on a credit card,” CFPB said in a release.
The bureau said low-income households are hit hardest with overdraft and non-sufficient funds (NSF) fees. It said that 34% of households making less than $65,000 were charged an overdraft or NSF fee in the past year. At the same time, just 10% of households with more than $175,000 in income were charged the fees.
In fact, the bureau stated, households frequently incurring overdraft and NSF fees are more likely to struggle to meet their financial obligations. It reported that, among households that frequently incurred overdraft/NSF fees, 81% reported difficulty paying a bill at least once in the past year. That number drops to 25% for households that were not charged a fee, CFPB said.
And many consumers are surprised to be paying the fees at all, the agency claimed. “Among consumers in households charged an overdraft fee in the past year, 43% were surprised by their most recent account overdraft, 35% thought it was possible, and only 22% expected it,” the bureau reported. “Consumers who overdraft infrequently are more likely to be surprised by a fee: 15% of consumers from households charged 1 to 3 overdraft fees expected their most recent transaction to overdraft; among households charged more than 10 overdraft fees, 56% expected their most recent overdraft.”
The bureau said that, in many cases, households had credit available to avoid the fees. It said that, among households charged 1-3 overdraft fees in the past year, 68% had credit available on a credit card, while 62% of households charged 3-10 overdraft fees had credit available on a credit card. In households charged more than 10 fees in the past year, 51% still had credit available on a credit card, CFPB said.
CFPB Issues Report Showing Many Americans Are Surprised by Overdraft Fees