Complete Description:In 2006, the Federal Deposit Insurance Corporation (FDIC) initiated a two-part study to gather empirical data on the types, characteristics, and use of overdraft programs operated by FDIC-supervised banks. The study was undertaken in response to the recent rapid growth in the use of automated overdraft programs, defined as programs in which the bank honors a customer's overdraft obligations using standardized procedures to determine whether the nonsufficient fund (NSF) transaction qualifies for overdraft coverage. Little empirical data have been available on these programs, their features, their managing practices, the fees imposed, and consumer usage patterns. Data and information for the FDIC's study were gathered through a survey of a sample of banks that represented 1,171 FDIC-supervised institutions, and a separate data request of customer account and transaction level data from a smaller set of 39 institutions.
The report finds that 86% of banks operated at least one formal overdraft program -—either automated, linked accounts, or lines of credit (LOC). Most automatically enrolled customers in automated overdraft programs but treated linked-account and LOC programs as opt-in programs. Fees assessed for linked-account and overdraft LOC programs were typically lower than for automated overdraft programs.
Although almost 75 percent of consumer accounts had no NSF transactions during the 12-month period examined, almost 12 percent of consumer accounts had 1 to 4 NSF transactions, 5.0 percent had 5 to 9 NSF transactions, 4.0 percent had 10 to 19 NSF transactions, and 4.9 percent had 20 or more NSF transactions. Almost 9 percent of consumer accounts of banks reporting data had at least 10 NSF transactions during the 12-month period of analysis. Customers with 5 or more NSF transactions accrued 93.4 percent of the total NSF fees reported for the 12-month period. Customer accounts with 1 to 4 NSF transactions were charged $64 per year in NSF fees on average. Customer accounts with 5 to 9 NSF transactions were charged $215 per year in NFS fees on average. Customer accounts with 10 to 19 NSF transactions were charged $451 per year in NFS fees on average. Customer accounts with 20 or more NSF transactions were charged $1,610 per year in NSF fees on average. Accounts held by customers in low-income areas (in some areas, median annual income of less than $30,000) were more likely than accounts in higher-income areas to incur overdraft charges. Recurrent overdrafts were also more likely the lower the income group.Accounts held by young adults (ages 18 to 25) were the most likely among all age groups to have automated overdraft NSF activity.