Thank you for being with us today. I want to thank my co-author on this report, Peter Smith, who is also a researcher at the Center for Responsible Lending
Our nation is in a crisis of debt that reaches beyond the foreclosure epidemic and deep into the pockets of Americans who are living paycheck-to-paycheck. Banks and Credit Unions compound this problem through a problematic practice that strips billions in fees for a so-called service that their customers don't ask for and typically don't want.
Today, consumers are typically enrolled automatically into their bank's most expensive overdraft protection program where transactions by check, debit card or internet payment are commonly approved even when their customer's checking account is in the negative.
For this service, the bank charges a fee averaging over $30 per incident. Small debit card transactions are the most frequent trigger of these overdrafts. Because consumers are automatically enrolled in this service—without their express consent—we call these transactions "unauthorized overdrafts." Unauthorized overdraft fees cost Americans $17.5 billion per year.
Today we release a report called "Shredded Security," in which we zone in on a segment of the population that is especially vulnerable to this practice—older adults in or nearing retirement. Americans aged 55 and older pay $4.5 billion for these unauthorized overdrafts.
What's more, nearly $1 billion of these fees come from people who rely heavily on Social Security income. This is an extra and unnecessary financial threat to an age group that is already facing growing mortgage and credit card debt, and inadequate savings to carry them through retirement. As AARP reported in a new study yesterday, bankruptcy rates are rising faster for adults 55 and over than any other age group.
While older adults are less likely to use debit cards than their younger counterparts, debit card transactions, which are usually for small purchases, are still the most frequent trigger of unauthorized overdrafts for those over 55. Because of this, older adults pay $1.65 in fees for every dollar advanced by the banks to cover overdrafts.
Older adults report overwhelmingly in a CRL survey that they want the option to avoid unauthorized overdrafts. They would rather be declined at the checkout counter if their debit card purchase would otherwise result in an overdraft. And yet, they don't have this option and are frequently plunged into the red without warning, creating a snowball effect of fees that is difficult to recover from, especially for those on a fixed income.
Older adults should not be placed in these overdraft loan programs without their specific and informed consent. Their Social Security income should not be collected by the bank automatically for the repayment of overdraft fees – this is protected income and can normally not be claimed to pay other types of debt.
Banks and credit unions should not be allowed to stack the deck against their customers by manipulating the order in which they clear charges or holding deposits longer than necessary in order to maximize fees.
Federal bank regulators now acknowledge that unauthorized overdrafts are a significant problem, but new rules they have proposed do not go far enough to protect consumers.
Our survey shows nearly 90 percent of bank customers prefer to be asked if they want an overdraft loan service before being enrolled. The regulators' proposal burdens consumers with having to unsubscribe from a service rather than making banks obtain consent before charging for it.
As out-of-control debt threatens financial security, savings, and homes we must find the leaks and plug them. Fixing the problem of unauthorized overdrafts is a small but essential step in restoring balance to our banking system and shoring up the financial security of American households.
Thanks and I'm happy to take your questions.
For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Sharon Reuss at (919) 313-8527 or sharon.reuss@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.