Pew Releases New Overdraft Report

December 20, 2016

On Wednesday, December 20, 2016, the Pew Charitable Trust released its latest study of bank overdraft practices.  The study claims most major U.S. banks continue to charge high fees when customers overdraft their accounts, and many still reorder transactions aimed at maximizing overdraft fees.  A separate review of small banks ($1B and below) found similar issues, marking the first time Pew has included this category of banks in its reports. 

 

Key report findings included:

  • Service charges on deposit accounts, which include overdraft and NSF fees, have more than doubled while interest income has decreased during the past three decades.
  • Most of the largest U.S. banks with consumer checking accounts continue to charge at least $35 each time an overdraft is incurred.
  • Many of the largest U.S. banks with consumer checking accounts fail to meet Pew's recommended best practices on overdraft programs. More than 40 percent of these banks process transactions from largest to smallest by dollar amount which can reduce the account balance more quickly, resulting in more overdrafts than other methods, such as posting transactions chronologically.  It also found nearly 80 percent in institutions allow overdrafts on ATM and debit point-of-sale transactions.

 

In its report, Pew urged regulators to ensure overdraft programs are transparent and designed only for infrequent and accidental occurrences using any or a combination of the following:

  • Enable banks and credit unions to offer affordable, small-dollar loans in place of expensive overdraft penalty programs.
  • Make overdraft penalty fees reasonable and proportional either to the financial institution's costs in providing the overdraft loan or to the overdraft amount.
  • Allow financial institutions to charge customers a maximum of six overdraft fees in any 12-month period, and limit such fees to one per negative-balance episode (i.e., an overdraft that incurs one or more fees).
  • Prohibit banks and credit unions from maximizing overdraft fees when posting deposits and withdrawals.
  • Require financial institutions to provide account holders with clear, comprehensive terms and pricing information for all available overdraft options.