Expert advice to avoid overdraft fees
Typical overdraft fee is a little over $26
(InvestigateTV) — According to the Consumer Financial Protection Bureau (CFPB), about 4 out of 10 consumers that were charged an overdraft fee said that they were surprised the last time that happened.
Gio Palloni with the CFPB said a recent study they conducted revealed that more than a quarter of consumers said someone in their household was charged an overdraft fee or non-sufficient fund fee within the past year.
“They thought they had enough money in their account to cover the transaction but instead they were charged an overdraft fee,” Palloni said.
The survey also found that only 22% of households expected their most recent overdraft and that low-income households are often hit the hardest.
“The consumers and households that are charged more overdraft fees are more disadvantaged, so you can see, for example, they’re much more likely to be lower income households,” Palloni explained. “They have credit scores that are more than 100 points lower, and if you ask them how they’re doing it, meeting their household financial obligations, it’s much more likely that they’re saying that they have issues meeting their household financial obligations. So, really, it’s clear that overdraft and concessions are disproportionately hitting households or consumers from households that are struggling to make ends meet.”
Pallino said they did notice that a small group of consumers purposely go into overdraft.
“About 2 out of 10 consumers from households that were charged in overdraft fee, said that they expected to be charged an overdraft fee,” Palloni clarified, “and these are consumers that are charged and overdraft fee more frequently and they’re likely using it intentionally as a form of credit. Albeit an expensive form of credit.’
The CFPB has an article that give tips on how to avoid overdraft fees. They include:
- Track balances carefully
- Turn off overdraft protection
- Link to a savings account
- Secure a line of credit
Pallino urged consumers to make sure they consider those options now, so they’re not shocked the next time they check their account balance.
Know account balances and credit options, Pallino said, but also understand how expensive using overdrafts as credit can be.
The CFPB has further information available for managing accounts on their website.
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