A new CFPB report found consumers who overdraw their checking accounts with debit cards generally overspend by small amounts, but pay very high costs for doing so.
According to the agency's research, the majority of debit card overdrafts occured on transactions of less than $24, and consumers returned their accounts to a positive balance within three days. Nevertheless, the CFPB said they paid an average of $34 per overdraw that resulted in an effective interest rate of 17,000%.
Further, the report suggested that programs like courtesy pay on debit transactions did not really help consumers. For example, 18% of consumers who opted in for that type of overdraft protection overdrew their accounts more than 10 times per year, while only 6% of consumes who declined to opt-in overdrew their accounts that often.
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Further, consumers who opted in for courtesy pay paid seven times the overdraft and NSF fees ($260) than those declined to opt in ($35).
"Today's report shows that consumers who opt in to overdraft coverage put themselves at serious risk when they use their debit card," CFPB Director Richard Cordray said. "Despite recent regulatory and industry changes, overdrafts continue to impose heavy costs on consumers who have low account balances and no cushion for error. Overdraft fees should not be 'gotchas' when people use their debit cards."
The report did contain some positive information for debit-issuing credit unions. The agency found consumers used their debit cards more than three times more often than they paid bills online or wrote checks. The agency found consumers who opted in for overdraft protection used their debit cards about 24 times per month, and consumers who declined to opt-in used their debit cards about 17 times per month.
By comparison, both groups of consumers only used online bill pay services or wrote checks roughly three times each per month.
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