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Banks Collect Overdraft Opt-Ins Through Misleading Marketing: Survey Finds Low Opt-In Rate, High Number of Misperceptions

7 Pages Posted: 8 Feb 2012 Last revised: 3 Mar 2012

Joshua M. Frank

Center for Responsible Lending

Peter Smith

Center for Responsible Lending

Date Written: April 1, 2011

Abstract

A survey was conducted regarding consumers choices whether to "opt-in" to overdraft coverage for their checking accounts. Many banks routinely cover any transaction that overdraws a customer’s account, including checks, ATM withdrawals, and point-of-sale debit transactions for a fee of about $34 -- often called “overdraft protection.” The Federal Reserve Board issued a rule requiring that banks and credit unions obtain customer consent before approving debit card transactions for a fee. Many banks responded by conducting aggressive campaigns aimed at getting customers to opt-in. The survey results find that only 33 percent of account holders opted-in to overdraft coverage. Most who did opt-in based their decision on misunderstandings of the nature of this coverage. Sixty percent of consumers who opted in stated that an important reason they did so was to avoid a fee if their debit card was declined. In fact, a declined debit card costs consumers nothing. Sixty-four percent (64%) of consumers who opted in stated that an important reason they did so was to avoid bouncing paper checks. The truth is that the opt-in rules cover only debit card and ATM transactions. For almost half of those who opted in, simply stopping the bank from contacting them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

Keywords: overdraft, checking, deposit accounts, debit, opt-in, defaults, cognitive errors

JEL Classification: D12, D18, D82, G21, G28, L15, K20

Suggested Citation

Frank, Joshua M. and Smith, Peter, Banks Collect Overdraft Opt-Ins Through Misleading Marketing: Survey Finds Low Opt-In Rate, High Number of Misperceptions (April 1, 2011). Available at SSRN: https://ssrn.com/abstract=2000954 or http://dx.doi.org/10.2139/ssrn.2000954

Joshua Mayer Frank (Contact Author)

Center for Responsible Lending ( email )

302 West Main St.
Durham, NC 27701
United States
9193138525 (Phone)
919-313-8592 (Fax)

HOME PAGE: http://www.responsiblelending.org

Peter Smith

Center for Responsible Lending ( email )

1330 Broadway, Suite 604
Oakland, CA 94612
United States

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