Chances are you have gotten a friendly letter or two from your bank in recent weeks, urging you to "opt in" to its overdraft coverage program, so that "you can continue to enjoy this important protection."
The last of a series of new overdraft rules goes into effect August 15, after which banks cannot automatically enroll new or existing customers in an overdraft protection program that smacks consumers with a hefty fee when the bank makes good on an overdraft. The banks have come to rely on the revenue from those fees and are worried about losing them.
It turns out they might not have as much to worry about as they thought. Research shows a surprising number of consumers have already "opted in" for the continued coverage and another large group indicates it plans to do so.
When the Federal Reserve drafted new rules preventing banks from making its overdraft coverage mandatory, consumer advocates were certain that most bank customers would say "no thanks." After all, complaints about overdraft fees, famously making a $5 latte a $40 purchase, have filled pages on ConsumerAffairs.com.
But a new report from Mintel Comperemedia, a service that provides direct marketing competitive intelligence, found that 26 percent of consumers said they had opted in for their bank's standard overdraft services and another 26 percent said they planned to do so in the future.
Marketing blitz
Mintel notes that the banking industry has engaged in a marketing full court press to achieve these results, incorporating direct mail, email, web and phone campaigns to encourage consumers to remain in a program that will charge them fees whenever they overdraw their account with their debit card. Those who decide to live without the overdraft protection will have their cards declined when a purchase would overdraw their account, but will not pay a fee.
In recent years, consumers have paid $23.7 billion per year in costly overdraft fees, which average $34 per incident. However, the Center for Responsible Lending (CRL) says there are a number of less costly alternatives to standard overdraft coverage.
"To avoid costly fees under standard overdraft coverage, customers can sign up for lower cost overdraft alternatives at their bank, such as linking a savings account or credit card for back-up funds, or applying for an overdraft line of credit," the group says on its website.
CLR maintains that banks' recent marketing blitz has been targeted at the most vulnerable consumers because they are the ones most likely to have incurred overdraft fees in the past. To induce these customers to accept overdraft coverage, CLR asserts, many marketing campaigns use scare tactics or incomplete information. For example, they fail to emphasize customers can have debit card transactions declined at no cost rather than incur a $34 overdraft fee.
