Most consumers want important transactions paid by their financial institution even if those transactions result in an overdraft, the Independent Community Bankers of America found in a survey of consumers.
The ICBA Overdraft Payment Services Study of 3,000 consumers found that most consumers understand the potential consequences of returned payments and are knowledgeable of alternative services to avoid overdrafts.
Further, most consumers do not pay overdraft fees—more than three-quarters of consumers did not incur an overdraft in the past year.
The study comes as the Consumer Financial Protection Bureau is seeking public input regarding overdraft programs, and examining overdraft policies in large banks to see if additional regulation is needed.
“This study demonstrates that consumers who use overdraft payment programs understand the service and prefer it to other sources of short-term funding—so overdraft services should continue to be readily available to them,” said ICBA Senior Vice President of Regulatory Policy Viveca Ware.
“Community banks offer overdraft services as a valuable service to meet their customers' financial needs. Regulatory policies should not impede Main Street institutions' ability to do so,” Ware said.
The study also found that consumers' choice of financial institution makes a difference. With just under 15% paying an overdraft fee in the previous 12 months, community bank customers incur overdraft fees less frequently than customers of megabanks (24%), credit unions (19%) and regional banks (19%).
Community bank customers also are less likely to opt out of overdraft coverage for check and ACH debit transactions, the ICBA said.
Without overdraft services, consumers face consequences including merchant returned check fees, late fees, possible credit report and check verification system blemishes, collections hassle and embarrassment. All of these scenarios can be worse than incurring an overdraft fee, the trade group said.
According to the ICBA study, most consumers, particularly those using overdraft services, are aware of alternative services to meet their payment needs, such as account transfers and lines of credit. Overdraft coverage is the most preferred option for consumers with four or more overdraft transactions in the past 12 months.
Further, more than 85% of consumers prefer that their financial institution pay at least one important transaction, such as a mortgage or rent payment, provided a fee of an equal amount would be charged whether the transaction were paid or returned.
The study shows that overdraft payment programs are an important source of short-term funding for consumers and that regulatory policy should not restrict or impede consumer access to services that are right for them, the ICBA said.
The report is available on the ICBA's website.
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