A report from the Pew Charitable Trusts calls for feds to limit "very expensive short-term credit for vulnerable consumers."
The Pew Charitable Trusts is calling on the federal government to limit the negative effects of overdraft fees and prevent them from becoming “very expensive short-term credit for vulnerable consumers.”
In a recent report on what it calls “heavy overdrafters,” the nonprofit Pew urges the Consumer Finance Protection Bureau to limit the amount, frequency or overall cost of overdraft fees.
Heavy overdrafters are defined as people who incur more than $100 in overdraft and insufficient-funds fees per year. Pew, which surveyed heavy overdrafters, explains:
For these consumers, overdraft service is not just an occasional courtesy but an extremely expensive form of credit that is also high risk because it lacks the consumer protections that accompany other credit products.
The Pew survey found that overdraft fees disproportionately affect less affluent people, younger generations and minorities.
For example, among the heavy overdrafters identified by Pew:
- 67 percent earn less than $50,000 per year
- 53 percent rent their homes
- 35 percent are part of the millennial generation, defined here as adults born after 1980 (while only 27 percent of the U.S. population is millennials)
- 33 percent are part of Generation X, defined as people born from 1965 to 1980 (while only 27 percent of the U.S. population is Gen Xers)
- 19 percent are African-American (while only 12 percent of the U.S. population is African-American)
- 19 percent are Hispanic (while only 17 percent of the U.S. population is Hispanic)
Because heavy overdrafters tend to be less affluent, overdraft fees also consume a larger portion of their income. Pew found that 24 percent of them paid the equivalent of at least one week of wages in overdraft fees in the past year.
The three biggest banks — JPMorgan Chase, Wells Fargo and Bank of America — reaped more than $5.1 billion last year from overdraft fees alone.
Money Talks News founder Stacy Johnson also cited overdraft fees in “10 of the World’s Most Infuriating Fees and How to Avoid Them.” In that story, he suggested linking your savings to your checking account for overdraft protection.
For more tips, check out “14 Ways to Dodge Banking Fees.”
What has your experience been with overdraft fees? Share your thoughts below or on Facebook.