Joshua Frank on How Banks Use Misleading Marketing to Generate Overdraft Opt-Ins

Joshua M. Frank

 of the Center for Responsible Lending has written Banks Collect Overdraft Opt-Ins Through Misleading Marketing: Survey Finds Low Opt-In Rate, High Number of Misperceptions. Here's the abstract:

A survey was conducted regarding consumers choices whether to "opt-in" to overdraft coverage for their checking accounts. Many banks routinely cover any transaction that overdraws a customer’s account, including checks, ATM withdrawals, and point-of-sale debit transactions for a fee of about $34 -- often called “overdraft protection.” The Federal Reserve Board issued a rule requiring that banks and credit unions obtain customer consent before approving debit card transactions for a fee. Many banks responded by conducting aggressive campaigns aimed at getting customers to opt-in. The survey results find that only 33 percent of account holders opted-in to overdraft coverage. Most who did opt-in based their decision on misunderstandings of the nature of this coverage. Sixty percent of consumers who opted in stated that an important reason they did so was to avoid a fee if their debit card was declined. In fact, a declined debit card costs consumers nothing. Sixty-four percent (64%) of consumers who opted in stated that an important reason they did so was to avoid bouncing paper checks. The truth is that the opt-in rules cover only debit card and ATM transactions. For almost half of those who opted in, simply stopping the bank from contacting them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

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What's more, the average overdraft fee is considerably more than the average overdraft (about $20). Today's New York Times has this story on the issue.