As banks hit consumers with higher fees for overdrawing their bank accounts, young adults are being hurt disproportionately, according to research released last week by the Center for Responsible Lending.
Those ages 18 to 24 — many of whom are in college — tend to use debit cards more often and to buy smaller-ticket items, making them especially susceptible to overdraft fees, the center says.
Its research shows that for each dollar overdrawn on a bank account, young adults pay more than $3 in fees, compared with nearly $2 in fees per dollar overdrawn by all adults. Overall, 18-to-24-year-olds pay nearly $1 billion in fees each year for overdrafts.
“These overdraft loans,” says Eric Halperin of the center’s Washington office, “are robbing young people of a secure and solid start in their own lives.”
Congress is considering a bill sponsored by Rep. Carolyn Maloney, D-N.Y., that requires, among other things, that banks warn customers before they overdraw, so they have the option to back out of the transaction.
Michael Moebs, founder of Moebs Services, a bank-consulting firm, faults the center’s data as “inadequate” because of its sample size. The center, though, says it relied on a nationally representative database of thousands of bank customers, from which it identified 775 overdrafts.
It’s Their Fault
Nessa Feddis, senior federal counsel for the American Bankers Association, says financially irresponsible consumers, regardless of age, are more likely to pay overdraft fees.
But banks are making it easier for even the most fiscally responsible — if sometimes cash-strapped — consumers to overdraw their account, say consumer groups.
Most banks now clear transactions from highest to lowest dollar amount, rather than in the order they arrive, thereby creating more overdrafts. Among the nation’s 10 largest banks, eight typically pay checks from largest to smallest dollar amount.
