By: Joe Gillen
A larger percentage of consumers are relying on overdraft privilege programs to help them meet their short-term financing needs, according to a new report.
Despite repeated claims by several government agencies that consumers don't want or use overdraft privilege programs, new data from research firm Moebs Services demonstrates that consumers are increasingly turning to these benefits when they face financial shortfalls. During the nine-month period between October 1, 2011 and June 30, 2012, the volume of transactions increased 6.8 percent. The research company highlights that this increase played out despite many claims - such as those made by the Consumer Financial Protection Bureau - that these short-term financing products were largely unwanted by consumers.
"Despite regulation and legislation, such as 2008's Truth in Savings, 2010's Reg E Opt-in requirements and the 2011 overdraft guidelines issued by the FDIC, consumers' use of overdrafts shows no indication of going away," said Michael Moebs, economist and CEO of Moebs Services.
In addition, the study showed that an increase in competition regarding the overdraft market has led to more competitive pricing, giving consumers more options and flexible service fees. Credit unions and community banks have long kept their service fees for overdraft protection below that of larger Wall Street banks, and more competitive pricing might prompt some to lower their fee structures even more.
The study sheds light on the overarching argument against over-regulating the financial marketplace. While lawmakers are in the right by trying to curb abuses to consumers made by large Wall Street megabanks, it's also important that they avoid scrutinizing all products uniformly. Smaller banks and credit unions do not operate on the same terms as larger institutions and provide a range of services and products to consumers at affordable prices.