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Overdrafts Climb as More Struggle to Meet Expenses; JMFA Says it's a Service Many Consumers Need
Tuesday, December 10, 2013 6:50 AM

A bump in overdrafts in the third quarter suggests that more Americans are struggling to make ends meet. Lenders reportedly took in an annualized $31.8 billion in overdraft income — a 1.6 percent increase from the previous period.

A quarterly report from economic research firm Moebs Services finds that while average overdraft fees held steady at $30, consumers overdrew their accounts more frequently. The average customer overdrew his or her account 7.1 times annually, compared to an average of seven times in the previous period.

While some may view the frequent tendency to overdraw a checking account as a lack of financial sophistication or even lack of judgment, John M. Floyd, chairman and CEO of John M. Floyd & Associates, says it is important to remember that if overdraft protection were not available to them, many consumers would be forced to turn to more costly, often unregulated sources.

“A fully disclosed overdraft program that clearly defines the rules by which an account holder may access an overdraft service establishes a straightforward approach of responsible use,” Floyd writes in the latest Floyd Report. “Plus, such programs give account holders a reliable tool for maintaining control of their money and help them to avoid less attractive choices of meeting their liquidity needs, such as resorting to high interest rate credit cards or payday lenders.”

Moebs Services notes that the slight uptick in overdraft revenue does not add much to a financial institution's bottom line compared to cost control and lower expenses.