Thanks to new federal regulations, banks can no longer automatically sign customers up for their overdraft protection programs. Additionally, banks were given until August 15 to get explicit consent from customers as to whether they wish to participate in these programs.
These regulations are intended to protect those struggling to make ends meet from the fees associated with overdrawing their checking account. However, a recent analysis by the Center for Responsible Lending (CRL), a non-profit research organization, found many banks and credit unions are using scare tactics and misinformation to push vulnerable customers into accepting overdraft coverage.
According to a report released by the CRL, many institutions are failing to emphasize to customers that they opt to have debit card transactions declined at no cost rather than incur the average overdraft fee of $34.
Additionally, many banks target customers who frequently overdraw their accounts. For example, a credit union in Iowa (which the report doesn’t name) offered to pay incentives to employees who convince cardholders who often overdrew their accounts to opt in for debit card overdraft coverage.
The report also cites institutions that work with marketing consultants to prioritize marketing debit card overdraft coverage to these customers. One consultant suggested offering gifts or cash to customers with four or more overdrafts. MainStreet previously reported on such campaigns.
An earlier CRL study found accountholders with repeated overdrafts are more likely to be lower-income, single, non-Caucasian and renting their homes.