Study: Two-thirds of Americans don't know bank overdraft protection is optional

By: Craig Johnson

Updated:

Banks have a certain air of authority in their correspondence with customers — and why wouldn’t they? The banking industry controls about $1.5 trillion in the U.S. economy, which gives it enormous power in all things monetary.

Unfortunately, banks aren’t always completely transparent when it comes to the products and services that they offer you.

Take, for example overdraft protection, which is supposed to provide much-needed protection when you are in danger of overdrawing your account.

Typically, overdraft protection automatically transfers money from one account to the deficient one, heading off insufficient funds fees or bounced checks and the penalties associated with them. But according to a recent study, most consumers are thoroughly confused about overdraft protection.

Two-thirds (66%) of Americans don’t know that overdraft protection is optional, according to research from personal finance website NerdWallet. The online survey of more than 2,000 U.S. adults was conducted online by Harris Poll in August and commissioned by NerdWallet.

The findings also show that 63% of those charged an overage fee were unaware that the charge was optional. Think opting into overdraft coverage will save you some big bucks? Think again.

“By opting in to overdraft coverage, the 8 million people who overdraw frequently could wind up paying over $3.5 billion more in fees over the course of a year than they would if they opted out of overdraft coverage,” the study says. “That’s $442 a year for each person who frequently overdraws, according to NerdWallet’s analysis of CFPB [Consumer Financial Protection Bureau] data.”

In other words, if you don’t have money in your account and you have overdraft protection, you’ll get hit with a fee by the bank when a purchase or withdrawal comes through. But if you don’t have money in your account and you don’t have overdraft protection, the bank will simply decline the transaction and not charge you a fee.

It’s no wonder many consumers are a bit out of sorts when it comes to overdraft policies. Let’s look at the wording from some big banks on overdraft coverage and see if where there’s room for confusion.

Many banks say what Bank of America says on its website: “There’s no cost to enroll in Overdraft Protection. You pay for Overdraft Protection only when you use the service.” The bank adds: ” Transfer and other fees may apply when you use this service.”

SunTrust Bank offers three options — Overdraft Coverage, Overdraft Protection and Overdraft Assurance. Here are the deets for each:

  • Overdraft Coverage: “You may be charged up to $36 for each overdrawn item. However, if you deposit or transfer enough funds to bring your balance positive by cut-off that day, you will not incur any fees,” SunTrust says on its website.
  • Overdraft Protection: This service links your accounts to others so that funds can be covered. “As long as you have sufficient funds in your linked account, you’ll pay a $12.50 transfer fee for each day a transfer is required.”
  • Overdraft Assurance: This service offers a line of credit ranging from $500 to $5,000. “There is a $7 monthly charge assessed to your designated checking account for maintaining this line of credit – regardless of how little or much you use it,” SunTrust says.

Finally, JP Morgan Chase Bank says on its site, “There is no fee for an Overdraft Protection transfer, however, an Overdraft Protection transfer counts toward (1) a $5 Savings Withdrawal Fee, and (2) federal regulations that limit you to six savings account withdrawals or transfers per monthly statement period, except those made at a bank branch or ATM.

Confused yet? In 2010, federal regulators attempted to cut down on customer confusion by requiring banking institutions to amend their rules so that consumers would have to opt in for overdraft protection plans. Seven years later, it seems there’s still work to do when it comes to consumer education.

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