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Bank Overdraft Fees Hit Younger Adults Hardest, Pew Says

By Mercator Advisory Group
April 22, 2016
in Analysts Coverage
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Younger adults are among those hardest hit by bank overdraft fees, a new report from the Pew Charitable Trusts that was released on Wednesday said.

More than a third of “heavy” overdraft users — those who pay $100 or more in bank fees in a year for overdrawing their bank accounts — are in their late teens through early 30s, Pew found.

One reason younger consumers may be more affected is that they are more likely to use debit cards, and debits make up the majority of transactions resulting in overdraft fees, said Joy Hackenbracht, a research officer with Pew.
“Frequent overdrafts are a financial burden,” she said.

Many banks let customers overspend their checking accounts when they do not have enough money to cover a purchase, but then charge a fee — typically $35 — known as an overdraft fee.

A small proportion of customers pay the majority of overdraft fees, Pew found, and they pay more than three such fees a year. The typical debit transaction amount that results in an overdraft fee is $24.

While fee income may be welcome by some financial institutions, they can cause irreparable harm to their reputations. This is because fees, particularly those that appear to take advantage of customers’ and members’ short-term money woes, can be a death knell for future relationship-building efforts. As noted in this article, many of these cases involve younger consumers, many of whom will soon be advancing in their financial lives, and will be looking for a primary financial institution. For FIs charging exorbitant fees, they must realize that they are trading shorter-term revenues for lost opportunities down the road.

Overview by Ed O’Brian, Director, Banking Channels Advisory Service at Mercator Advisory Group

Read the full story here

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