You're Twice As Likely To Pay Overdraft Fees With 'Overdraft Protection' Than Without It | ThinkProgress

Despite its name, signing up for “overdraft protection” with your checking account leaves banking customers far more likely to pay overdraft fees, according to a new study of the policies by the Consumer Financial Protection Bureau (CFPB). At about $34 a pop, those charges are typically larger than the purchase that overdrafted the account in the first place.

New rules instituted four years ago require banks to get customer permission to authorize transactions that overdraw the funds in the customer’s account. Once an accountholder opts in to the “overdraft protection” system, the bank will authorize overdrafts and assess a penalty after the fact. Such opt-in accountholders are nearly twice as likely to get hit with an overdraft fee in a given year than those who decline overdraft protection, the CFPB found. Opt-in accounts are more than twice as likely to pay four or more overdraft fees in a year, and three times as likely to pay 11 or more such penalties each year.

Opt-in accounts pay an average of $21.61 per month in overdraft fees, compared to $2.98 per month on average for those who decline the “protection” banks offer. (Roughly one in four who decline the protection still find a way to overdraft at least once a year, typically through automatic debit transactions used to pay recurring bills. Banks authorize those auto-pay transactions for all users regardless of their opt-in status.) Just 8 percent of accountholders pay three-quarters of the total overdraft fees that banks collect.

You're Twice As Likely To Pay Overdraft Fees With 'Overdraft Protection' Than Without It | ThinkProgress