When a transaction exceeds the amount in the consumer’s account, financial institutions can allow the transaction to go through for a fee, called an overdraft fee. This is also often referred to as a Not Sufficient Funds (NSF) fee. The average overdraft or NSF fee is about $35. Some institutions choose to charge daily, while others charge per overdrawn transaction. Many consumers are flustered to see an overdraft fee on their statement, yet these fees are considered the cost of short term credit. Overdraft fees have been long-standing in the banking industry, however, since the pandemic, many financial institutions have made changes to their overdraft programs, with many mega banks eliminating them.
Death to Overdraft?
If overdraft fees go away completely this will present some challenges to individual financial institutions and the industry as a whole. Some challenges include:
- Consumer Financial Instability
It’s no shock that the pandemic shook up consumer finances, in many ways that are yet to be realized. Financial institutions must continue to balance revenue growth with consumer sensitivity. Eliminating overdraft programs could actually be financially harmful to those who rely on it and don’t have access to other credit options or would otherwise turn to less regulated credit options.
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