FDIC Study of Bank Overdraft Programs

FDIC Advisory Committee On Economic Inclusion

December 2, 2009

Barbara A. Ryan

Deputy to the Vice Chairman

FDIC

Topics
        - Purpose of the Study
        - Study Design
        - Key Findings

Study purpose		
        - Study was initiated in 2006.
        - Designed to collect empirical data on the types, characteristics, and use of overdraft programs.
        - Covered FDIC-supervised institutions only.

Study design
        - Conducted as a two-part study.
        - Survey of FDIC-supervised institutions. 
        - Collection of customer account and transaction-level data from a subset of surveyed banks.

Survey of institutions
        - Surveys were administered by examiners at 462 FDIC-supervised institutions representing almost 1,200 banks.
        - Collected a wide variety of information and data related to automated overdraft programs.
        - Also collected comparative data on more traditional overdraft programs such as linked accounts and overdraft lines of credit.  

Data collection 
        - Transaction records collected from 39 institutions with assets of $332 billion.
        - Reflects transactions on 6.5 million customer accounts over a one year time period when the accounts were collectively overdrawn 22.5 million times.  
        - Reveals frequency of overdraft activity at the customer/account level, characteristics of customer accounts that generate overdraft fees, and the types and sizes of transactions that trigger overdraft fees.

Key Findings from the Survey of Institutions

Overdraft program adoption
        - As of 2006, about 41 percent of the banks and 77% of large banks (assets>1bn) offered automated overdraft programs.
        - Large banks (assets > $1bn) were early adopters.
        - Since 2001, growth in use of the programs has been rapid among banks of all sizes.  

Enrollment practices

Three quarters of banks automatically enrolled 

customers in automated overdraft programs.

By contrast, most linked account and line of credit overdraft programs require customers to opt-in.

Enrollment practices for automated overdraft programs

Enrollment practices for linked account programs

Credit limits

Most banks established credit limits for automated overdraft customers in written policies.

Overdraft fees

The median automated overdraft fee 

in 2006 was $27 versus $5 for linked accounts.

ATM and POS overdrafts

Most banks, regardless of size, permitted customers 

to overdraw their accounts at ATM and POS/debit terminals.

ATM and POS disclosure

Most, but not all, banks did not inform customers 

of ATM or POS/debit overdrafts until after the transaction had taken place. 

Notification of ATM NSF for Automated Programs

Notification of POS NSF for Automated Programs

Transaction processing order

Banks relied on a variety of processing orders 

with over half of large banks processing large transactions first.

Transaction Processing Methods

All Banks

Overdraft fee revenue

Three quarters of bank service charges on 

deposit accounts were generated by NSF and overdraft fees.

Key Findings from the Data Collection

Types of overdraft transactions 

POS/debit card transactions are the most common 

triggers of overdraft fees, followed by checks and ATM transactions.

NSF Transactions by Transaction Type

Sizes of overdraft transactions

The median transaction amounts for which

overdraft fees were assessed ranged from $20 to $78.

Incidence of overdraft fees

Most NSF fees were paid by repeat overdrafters.

Cost of overdraft fees

The aggregate fees paid by repeat overdrafters were substantial.

Overdraft activity by income

Accounts held by people living in lower income areas were 

more likely than others to have repeat overdraft activity.

Overdraft activity by age 

Accounts held by young adults were more likely 

than others to have repeat overdraft activity.

Thank YouFor more information visit www.fdic.gov/overdraft