CBA Releases National Empirical Survey Results Showing Consumer Value and Need for Bank Overdraft Products

WASHINGTON, D.C. – The Consumer Bankers Association (CBA) today released the results of a new national survey exploring how consumers use and feel about bank overdraft services. This is an early look of how consumers are using overdraft services after the COVID-19 pandemic – providing new data on the types of transactions for which consumers use overdraft services; what alternatives would otherwise be available to consumers; and how consumers feel about their choices and options.

The survey was conducted in response to the Consumer Financial Protection Bureau’s (CFPB) recent overdraft proposal, which would ultimately result in a single government-set price for all overdraft services offered by banks of $10 billion or more in assets.

CBA President and CEO Lindsey Johnson today released the following statement on the survey results: 

“For more than a decade, America’s leading retail banks have innovated and competed for consumers’ business by offering a diverse array of unique overdraft products tailored to meet their customers’’ needs. Banks have introduced grace periods; caps on the number of overdraft fees per day; de-minimis thresholds; and a wide range of other features that are specific to the consumers they serve – these new products and features were all introduced without regulation or legislation.

“Today’s survey results confirm that consumers rely on and appreciate the liquidity and autonomy that overdrafts offer when they need to make ends meet. The data shows that overdraft services help consumers that may lack other options put food on the table; make car payments, and pay other bills on time – ultimately helping consumers live their lives, while also avoiding other fees and penalties. Further, the survey reinforces outside data showing that banks are offering this support to consumers with fewer fees and greater flexibility.

“One-size-fits-all government intervention could stifle bank-led progress on pricing and innovation, hindering access to this important consumer safety net. “The research shows that these products are working for consumers – who ultimately could be harmed by a rulemaking that seems more based on scoring short-term political points than actual data and concern about consumers’ long-term financial health.”

Topline Takeaways

• Consumers report that they primarily use overdraft services on important and necessary day-to-day purchases. When asked to identify the types of purchases enabled by their most recent overdraft transactions, the leading categories included food (30 percent), utilities (25 percent), and transportation costs (18 percent).
  
  • Notably, many of these transactions would incur their own financial penalty or punitive life impact if consumers were unable to complete the transaction or if they were required to pay late (e.g., utility bills, car payments, rent/mortgage, food). Accordingly, the survey shows that only six to 10 percent of consumers that report having overdrafted expressed that they were willing to forgo the transaction in lieu of using overdraft services.
    
• Consumers that report overdrafting four or more times in the past year say that they lack credit alternatives: 67 percent state they had been denied a credit card in the past, compared to only 34 percent of consumers who report not having overdrafted in the past year.
  
  • The survey asked consumers what options they would have if they lost access to overdraft services. Consumers stating that they overdrafted four or more times in the last year were as likely to report being able to use credit cards (10 percent) as having to pawn or sell household items (10 percent).
    
• Consumers that were most likely to view overdraft products negatively were consumers that did not actually report having used the product. Survey respondents who reported that they used overdraft services were more likely to view overdraft services favorably.
  

What Do Consumers Use Overdraft For?

CBA’s survey revealed that a majority of consumers who used overdraft in the last year used it for staple purchases like food, utilities, and transportation (Figure 1). Additionally, consumers who overdraft more frequently (four or more times in the past year) and those who have been denied a credit card in the past use it for these staples more often.

Consumers Who Frequently Overdraft Lack Better Alternatives

Consumers that identify as frequently overdrafting (four or more times in the past year) report that they lack credit alternatives with 67 percent stating they had been denied a credit card in the past compared to only 34 percent of those who did not overdraft in the past year (Figure 2). While using a credit card is sometimes a better option for covering short-term gaps in funds, it is not an option that is available to everyone. Reducing access to overdraft can have serious consequences for those unable to receive access to traditional, lower-cost credit products.

Additionally, frequent overdrafters were less likely to report being able to use credit cards (10 percent) than non-frequent overdrafters (23 percent) if they lost access to overdraft services (Figure 3). In fact, frequent overdrafters were just as likely to choose pawning or selling personal items as they were to choose using a credit card.

Most concerning is that frequent overdrafters were more likely to choose paying late (37 percent) than non-frequent overdrafters (19 percent) to cover a gap in funds if they lost access to overdraft services. Paying late can have additional financial and health consequences including late fees, shut-off of utility services, lower credit scores, and negative health impacts of forgoing food and grocery purchases.

Background

Attacks from regulators and other policymakers on overdraft fail to reflect the growing number of innovative overdraft products and policies introduced over the past decade, and in particular since the pandemic, by America’s leading banks to provide consumers with even greater choice and flexibility to meet their needs within the highly competitive and well-regulated banking system. 

The current overdraft marketplace highlights the competition and innovation banks have made in this space:

• Per CFPB summaries of industry innovation as of June 2023, 14 of the top 20 banks have introduced “Next Day Grace” or eliminated overdraft fees.
• These changes are expected to result in $167 in annual savings per U.S. adult by year end 2023.
• If current trends continue, consumers could save more than $28B in the five-year period between 2021 to 2025.
• Overdraft revenue comprises less than two percent of annual industry revenue and less than four percent of industry net income.

Ahead of the CFPB’s Monday, April 1, comment deadline on this proposal, it is CBA’s hope these survey results will benefit other organizations’ comment letters to ensure the Bureau takes these data-driven insights into account or even withdraw the proposal entirely.

To view the full survey results, click HERE.

CBA Advocacy

• To view CBA’s Overdraft Facts microsite that highlights bank-led innovations in overdraft that have already resulted in billions in consumer savings, click HERE.
• To read CBA’s July 2023 letter to the Senate Banking Committee’s Financial Institutions and Consumer Protection Subcommittee reiterating opposition to the Biden Administration’s ongoing “junk fee” campaign that misrepresents well-regulated bank fees, click HERE.
• To read CBA President and CEO Lindsey Johnson’s op-ed urging policymakers to recognize the impact of recently unveiled bank-led overdraft innovations designed to expand choice, strengthen transparency, and lower costs for hardworking consumers, click HERE.
• To read CBA’s letter in opposition to H.R. 4277, the “Overdraft Protection Act,” that would restrict consumer access to a safe emergency liquidity option, click HERE.