- Most overdraft fees are paid by a small fraction of bank customers: 8 percent of customers incur nearly 75 percent of all such fees.
- Overdraft and NSF fees account for about 75 percent of customers’ total checking account fees and average over $250 per year.
- Transactions that lead to overdrafts are often quite small. In the case of debit card transactions, the median amount that leads to an overdraft fee is $24.
- Most consumers who overdraft bring their accounts positive quickly, with more than half becoming positive within three days.
- The propensity to overdraft generally declines with account holder age, with 10.7 percent of the 18 to 25 age group having more than 10 overdrafts per year, but only 2.8 percent of the 62 and over age group falling into this category.
It’s also common for some banks to charge multiple overdraft fees on a given day, so it’s not unheard of for an account holder to incur three overdraft fees in a day, even if by accident, and get hit with $100 or more in fees, says Chanelle Bessette, banking specialist at personal finance site NerdWallet. “Overdraft fees can be more than just one-hitters,” she says. “They can add up to being crazy amounts over time.”
Not surprisingly, overdraft fees are a big turnoff for customers, especially for account holders already experiencing financial distress. “Overdraft fees tend to hit people when they are already down, which is what makes them particularly frustrating for people,” Bessette says. “To get punished for a situation that is already tough can be really challenging. Having lower fees obviously lifts the load from consumers’ minds to not have to worry as much” about occasional account overdrafts.
Peer pressure driving fees lower
For years now, banks have been under public pressure from lawmakers and consumer protection advocates to do away with fees that statistics show prey on households least able to absorb them. In the past year, for example, more than 4 of 10 (43 percent) “financially vulnerable households” with checking accounts reported having been charged overdraft fees — with 9.6 overdrafts on average, according to the Financial Health Network. The report also found that low- to moderate-income households are 1.8 times more likely to have overdrafts than higher-income households.
“This important step is way overdue,” says Leigh Phillips, chair of the CFPB Consumer Advisory Board and president and CEO of SaverLife, a nonprofit company that helps working families achieve prosperity through savings. “For too long, too many banks have profited from those who can least afford to pay, charging excessive fees that can trap consumers in a debt cycle or force them to leave the financial mainstream completely. Your bank should contribute to your overall financial stability and health, not strip wealth from your account with excessive fees,” Phillips says. “There is simply no reason for high-cost overdraft fees to exist.”
The rise of upstart online banks, such as Ally Bank, as well as so-called “fintech” companies and “neobanks” that charge lower fees and pay higher interest on cash deposits, has pressured traditional banks to pare back fees to retain customers and attract new ones, says NerdWallet’s Bessette. “The marketplace is just much more competitive for banks than it has ever been,” she says. “Overdraft fees are such a frustrating thing that if you can join a bank that’s never going to put you through that, it’s a really desirable thing.”
Still, with some banks already getting rid of fees altogether, Bessette says she was surprised Bank of America didn’t eliminate the annoying and costly overdraft fee altogether.
But the trend toward lower fees looks like it is here to stay, and the latest fee cut by a market behemoth like Bank of America could prod other banks to do the same, says Greg McBride, chief financial analyst at Bankrate.com. “This will ratchet up pressure on other large national and regional banks to take similar steps,” McBride says. “For the small share of accountholders that generate repeated overdrafts, the wind is blowing in your direction and a broader trend of relief on overdraft fees is afoot.”
Adam Shell is a freelance journalist whose career spans work as a financial market reporter at USA Today and Investor’s Business Daily and an associate editor and writer at Kiplinger’s Personal Finance magazine.
FAQs
After the CFPB began its work to tackle junk fees, many banks began reforming their overdraft and non-sufficient funds fees policies. Those reforms have resulted in $3.5 billion in annual savings on overdraft fees and an additional $2 billion in savings on non-sufficient funds fees.
Have banks stopped charging overdraft fees? ›
Many banks have stopped charging overdraft fees on some or all of their checking accounts, but that doesn't mean they permit overdrafts. If you'd like the option to overdraw your account, look for banks that offer several forms of overdraft protection.
Is Biden getting rid of overdraft fees? ›
Biden administration plans to slash overdraft fees at big banks: 'I call it exploitation,' president says. The Consumer Financial Protection Bureau on Wednesday proposed a set of new rules that would slash the fees banks charge customers for withdrawing more than the available funds in their account.
Why are banks changing overdraft fees? ›
The Financial Conduct Authority (the banking regulator) has said it expects banks to take "positive steps" to help people in financial difficulty as a result of overdraft charges – this could include waiving or reducing your overdraft interest, or letting you repay it as a loan with a lower rate.
What is the new law about overdraft fees? ›
Introduced in House (06/30/2021) This bill prohibits a financial institution from engaging in unfair or deceptive acts in connection with overdraft coverage. the consumer will not be charged a fee if such transaction is declined.
Why are banks lowering overdraft fees? ›
After the CFPB began its work to tackle junk fees, many banks began reforming their overdraft and non-sufficient funds fees policies. Those reforms have resulted in $3.5 billion in annual savings on overdraft fees and an additional $2 billion in savings on non-sufficient funds fees.
Do banks ever forgive overdraft fees? ›
If you overdraw your account for the first time, a call to your bank could get the charge removed. Even on a second or third offense, some banks will work with customers to reverse or waive charges.
Why are banks cancelling overdrafts? ›
The bank could take it away if they think your're over-using it and are in financial difficulty. But if your bank cancels your overdraft with no warning, you might have grounds to complain.
How do I overturn my overdraft fees? ›
The best way to try to get your overdraft fee refunded is to call your bank or credit union and speak to a customer service representative. While they don't have to approve your request, you may be able to persuade them by explaining how your account balance managed to cross into the red.
What is the overdraft Protection Act 2024? ›
The proposed rule, released on January 17, 2024, would limit the overdraft fees large financial institutions can charge by narrowing an exception in Regulation Z for overdrafts that were not previously agreed to in writing. In Regulation Z, such overdraft fees are excluded from the definition of a finance charge.
Federal laws do not specify maximum amounts for fees that banks can charge for overdrafts. These decisions are made by the bank.
Can overdraft fees be Cancelled? ›
Although it may feel uncomfortable, the most effective way to get reimbursed for your overdraft fees is to contact the bank or credit union's customer support department. If you don't have a history of overdrawing your account, the bank may be willing to refund or waive the fee to keep you as a good customer.
What happens when a bank closes your account due to overdraft fees? ›
That debt could be forwarded to a collection agency. If your unpaid bank fees go to collections, just like other unpaid debts on your credit history, that action is reported to the credit bureaus and can affect your credit score for up to seven years.
Did Biden get rid of bank overdraft fees? ›
So it's no surprise that President Joe Biden has targeted them and other hidden fees as he campaigns for re-election. Earlier this year, his administration proposed a rule that would cut overdraft fees from as high as $35 to between $3 and $14 in most cases.
Is the US bank lawsuit about overdraft fees? ›
U.S. Bank has agreed to pay $55 million to settle a class action lawsuit accusing the bank of charging improper overdraft fees.
Can I sue a bank for excessive overdraft fees? ›
When a bank engages in a violation involving an overdraft fee, they could be held liable for resulting damages to consumers, which can cover: Refunds for the fees charged. Losses caused by related harm, such as damaged credit. Damages related to consumer protection act violations.
Have overdraft fees removed? ›
The best way to try to get your overdraft fee refunded is to call your bank or credit union and speak to a customer service representative. While they don't have to approve your request, you may be able to persuade them by explaining how your account balance managed to cross into the red.
Why has my bank stopped my overdraft? ›
A bank will generally withdraw a customer's overdraft facility if they are concerned about the likelihood of not being able to reclaim their money further down the line. Banks are experts on risk analysis, and if they see you as too risky, then they will want to protect themselves.
What is the US bank overdraft fee lawsuit? ›
In July 2012, U.S. Bank was one of several megabanks that agreed to settle allegations it had "manipulated" debit card transactions "to generate excess overdraft fee revenues," paying $55 million to hurt consumers.
