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FDIC Study of Bank Overdraft Programs. FDIC Advisory Committee On Economic Inclusion December 2, 2009 Barbara A. Ryan Deputy to the Vice Chairman FDIC. Topics. Purpose of the Study Study Design Key Findings. Study purpose . Study was initiated in 2006.
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FDIC Study of Bank Overdraft Programs FDIC Advisory Committee On Economic Inclusion December 2, 2009 Barbara A. Ryan Deputy to the Vice Chairman FDIC
Topics • Purpose of the Study • Study Design • Key Findings
Study purpose • Study was initiated in 2006. • Designed to collect empirical data on the types, characteristics, and use of overdraft programs. • Covered FDIC-supervised institutions only.
Study design • Conducted as a two-part study. • Survey of FDIC-supervised institutions. • Collection of customer account and transaction-level data from a subset of surveyed banks.
Survey of institutions • Surveys were administered by examiners at 462 FDIC-supervised institutions representing almost 1,200 banks. • Collected a wide variety of information and data related to automated overdraft programs. • Also collected comparative data on more traditional overdraft programs such as linked accounts and overdraft lines of credit.
Data collection • Transaction records collected from 39 institutions with assets of $332 billion. • Reflects transactions on 6.5 million customer accounts over a one year time period when the accounts were collectively overdrawn 22.5 million times. • Reveals frequency of overdraft activity at the customer/account level, characteristics of customer accounts that generate overdraft fees, and the types and sizes of transactions that trigger overdraft fees.
Overdraft program adoption • As of 2006, about 41 percent of the banks and 77% of large banks (assets>1bn) offered automated overdraft programs. • Large banks (assets > $1bn) were early adopters. • Since 2001, growth in use of the programs has been rapid among banks of all sizes.
Enrollment practices Three quarters of banks automatically enrolled customers in automated overdraft programs. Enrollment practices for automated overdraft programs Enrollment practices for linked account programs By contrast, most linked account and line of credit overdraft programs require customers to opt-in.
Credit limits Most banks established credit limits for automated overdraft customers in written policies.
Overdraft fees The median automated overdraft fee in 2006 was $27 versus $5 for linked accounts.
ATM and POS overdrafts Most banks, regardless of size, permitted customers to overdraw their accounts at ATM and POS/debit terminals.
ATM and POS disclosure Most, but not all, banks did not inform customers of ATM or POS/debit overdrafts until after the transaction had taken place. Notification of ATM NSF for Automated Programs Notification of POS NSF for Automated Programs
Transaction processing order Banks relied on a variety of processing orders with over half of large banks processing large transactions first. Transaction Processing Methods All Banks
Overdraft fee revenue Three quarters of bank service charges on deposit accounts were generated by NSF and overdraft fees.
Types of overdraft transactions POS/debit card transactions are the most common triggers of overdraft fees, followed by checks and ATM transactions. NSF Transactions by Transaction Type
Sizes of overdraft transactions The median transaction amounts for which overdraft fees were assessed ranged from $20 to $78.
Incidence of overdraft fees Most NSF fees were paid by repeat overdrafters.
Cost of overdraft fees The aggregate fees paid by repeat overdrafters were substantial.
Overdraft activity by income Accounts held by people living in lower income areas were more likely than others to have repeat overdraft activity.
Overdraft activity by age Accounts held by young adults were more likely than others to have repeat overdraft activity.
