By: Joe Gillen
Lawmakers have long touted that overdraft privilege programs are predatory and prey on low-income Americans. Between new proposed overdraft legislation and the Consumer Financial Protection Bureau's inquiries into bank programs, Americans are at risk of losing their rights to choose which financing options to utilize.
A new study conducted by the Independent Community Bankers Association proves lawmakers wrong and demonstrates that overdraft programs are still in high demand. The ICBA Overdraft Payment Services study polled 3,000 Americans and found that most were well-informed about different short-term financing options and understood how their overdraft programs worked.
However, the majority of these Americans preferred overdraft protection programs to other services because they are cost-effective. For example, 85.5 percent of consumers said they prefer that their financial institution cover at least one important transaction - such as a mortgage, credit card payment or utility bill - because most fees are equal to the amount that would be charged whether the transaction was paid or returned.
The study also shows that community bank customers incur overdraft fees less frequently than consumers who belong to other institutions. Only 14.7 percent of community bank customers paid an overdraft in the past 12 months, compared with 24.3 percent of megabank customers or 18.8 percent of those who used to regional banks.
"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 Viveca Ware, ICBA senior vice president of Regulatory Policy. "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."
Lawmakers who are attempting to over-regulate overdraft protection programs fail to understand the consequences of restricting consumers' access to short-term financing options. Community banks feel that a small fee may be preferable to returned check fees, late payment fees, possible credit score damage, accounts in collections and the embarrassment of being declined at the register. Recent studies prove that the thousands of consumers who use these programs also agree.