Consumer Advocates and Media Misrepresent Responsible Overdraft Payment Programs

Recent media coverage portraying all overdraft payment programs as predatory and exploitive grossly misrepresents these financial products. Designed and implemented properly, these programs provide real value to members as well the credit unions who serve them.


Sparked by concerns among consumer watchdog groups, the House Subcommittee on Financial Services held a hearing July 11 on financial institutions’ overdraft practices.  Needless to say, we listened intently to the two hour proceeding.

Following the hearing there were a number of negative one-sided media reports including the CBS Evening News’ treatment of debit card overdraft fees. As an industry representative, I’ll be the first to admit that I’m not completely unbiased.  But I do attempt to portray our products and services honestly which is not always the case in some reporting. 

Let me make very clear that we take consumer advocacy concerns very seriously.  These advocacy groups, often supported by legislators, protect the public from egregious business practices.  But like any group with a vested interest, they should by no means be considered completely objective and unbiased.  

Unfortunately, to achieve their goals, these organizations often resort to dramatic grandstanding tactics.  It’s a way to focus media attention on the most extreme cases of “victimization,” cases that are hardly representative of the norm.   

I’ll point out just a few of the inaccuracies and half-truths reported as well as selected facts purposefully ignored in press coverage.  A case in point is the dramatic headline: Consumers paid $17.5 billion dollars in overdraft fees in 2006.  They left out the part that these programs actually saved consumers a lot more than the fees they paid to financial institutions for the service.  That purposefully deceives and misleads the reader.

Even if the stated overdraft fee charges were accurate – and they are not – and even allowing for ATM and Debit POS transactions where no fees would have been charged had the overdraft transactions simply been denied, consumers saved the equivalent of 150% of the amount they paid in fees that would have otherwise gone to merchants, retailers, and other payees covering returns and penalties.

The truth is that because their financial institutions paid their occasional overdrafts, consumers saved something in the neighborhood of $30 billion dollars in very real costs they otherwise would have incurred. And these savings occurred during the very same period (2006) that they supposedly incurred “$17.5 billion dollars” in fees?  Now that’s newsworthy! No one should overlook the fact that consumer advocate groups must exaggerate the abuses in order to make them“newsworthy.”

There is also no mention that financial institutions refunded or waived more than $2 billion dollars in overdraft charges to consumers during this same period simply to give consumers the benefit of any reasonable doubt when questions regarding the program arose.

It is very important to note that if consumer advocate extremists and some in the media have their way, well-run and responsible overdraft programs could be eliminated,resulting in higher costs and significantly reduced service to the consumers and your members.  The only ones who will benefit from these proposed “solutions” are fringe financial services providers and payday lenders – not consumers.

In closing, responsible overdraft programs can provide real cost savings as well as help consumers avoid aggravation, embarrassment, and occasional hardships.  Contrary to what the public is led to believe, people who utilize an overdraft service are of all income levels – responsible, hard working consumers who both understand and appreciate the convenience it provides.  They’re not helpless or manipulated victims with debts spiraling out of control.

More hearings are scheduled and doubtless more media coverage will appear.  It will be interesting to see if more balance and common sense prevail.

Sam Davis is President of Strunk & Associates, LP, a financial institutions advisory firm headquartered in Houston, Texas.  He has over 30 years experience in the financial institutions industry with Strunk, Continental Illinois National and First City-Texas.

A specialist  in retail payment systems, electronic delivery systems and telecommunications, Mr. Davis has also served on various association and industry task forces and planning committees and has taught at the ABA School of Bankcard Management. 



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Aug. 13, 2007



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