Survey: Overdraft Opt-Ins Being Sold with Scare Tactics

A survey by the Center for Responsible Lending (CRL) finds that banks are using misleading and aggressive marketing to sell their consumers on overdraft protection.

The Federal Reserve issued its rule requiring banks to obtain customer consent before approving debit and check transactions that would overdraw their accounts. The Fed was trying to protect consumers from unwittingly subjecting themselves to $34 fees for each overdraft incident.

But the survey found instead of providing customers with simple and informative explanations about the program, banks instead launched hard-sell campaigns to sign consumers for the high-profit overdraft protection, which is more accurately described as a high-interest, short-term loan.

The center's survey found that marketing materials often created the false impression that emergency action was needed on the account. For example:

We Need to Hear From You . . . To keep your account operating smoothly . . .  To avoid any interruptions in how we service your account, we need to hear from you.

Your Debit Card May Not Work the Same Way Anymore Even If You Just Made a Deposit.

Please keep in mind that this option [not opting in] may prevent you from completing everyday transactions including Any store and gas station purchase, Emergency home and car repair...Purchases when traveling, Medical or health emergencies.

Banks also conflated the treatment of checks and debit cards, implying that opting in would protect them from bounced check fees:

Save money by avoiding retailers’ returned check fees

Relax and protect yourself from the inconvenience of an overdrawn account and retailer fees

The Bounce Overdraft Program was designed to protect you from the cost and embarrassment of having your transactions denied. (emphasis added).  

You can protect yourself from the inconvenience of declined transactionsand additional fees normally charged to you by merchants for returned items. (emphasis added)

Survey Shows Low Opt-ins, Misperceptions

Even given misleading marketing, only 33 percent of accountholders opted-in to overdraft coverage, and most who did based their decision on information that was deceptive.  The survey found:

• Sixty percent (60%) 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 bombarding them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

These findings strongly suggest that an opt-in rate of 33 percent exaggerates interest in high-cost overdraft coverage for debit card transactions. Rather, the banks succeeded in confusing and wearing down some of their customers to the point that they accepted a product that would ultimately cost them unnecessary, exorbitant fees.