By: Joe Gillen
While some lawmakers and federal agencies have continued to rail against the supposedly harmful impact of overdraft privilege programs, they can play a key role in protecting college students and other younger consumers from negative implications.
With the summer more than half over, there may be a significant increase in the number of student checking accounts being opened near schools across the country, as students may not be near a branch of their prior financial institution.
However, these students are also coming into a situation where they may be in charge of closely managing their money for the first time in their lives. Mismanagement can quickly turn their confusion into a negative credit history without the protection of an overdraft program.
Overdraft programs are a central part of many student accounts. A recent study by The Pew Charitable Trusts reviewed checking accounts at 24 major financial institutions. Of the 14 which had specific student accounts, nine of them included overdraft programs as a part of the account.
The group recommended that financial institutions ensure clear disclosure of fees for better overdraft program compliance, which would allow students to comparison shop for the account best suited for them.
Other reviews have also shown that overdraft programs are not used solely by disadvantaged or low-income account holders. A study from the Mercatus Center at George Mason University found overdraft users have higher incomes than those who use payday lenders or pawnshops for their financial needs.
Those researchers said that officials have focused on income when looking on overdraft programs, while also ignoring the role that consumer responsibility pays in the fees.
For students managing their money for the first time and dealing with payments for rent, food and educational loans, the safety net provided by overdraft programs can be a valuable tool.