When Pew Charitable Trusts studied consumer survey data in 2018, the researchers found that almost 40 million people in Michigan and around the country pay at least one overdraft fee each year. The data also suggests that about a third of the people who pay these fees view bank account overdrafts as a form of short-term borrowing. Research conducted by the Consumer Financial Protection Bureau in 2021 reveals that soaring inflation and rising interest rates have made overdrafts far more common. According to the CFPB, about 9% of the checking accounts in the United States are overdrawn 10 or more times each year.
Bank profits
These statistics suggest that millions of Americans are struggling to cope financially, but their problems are a major source of income for banking institutions. Banks earned $15.47 billion from insufficient funds revenue and overdraft fees in 2019, and most of this money went to the nation’s largest financial institutions. Banks with assets of $1 billion or more earn 44% of their profits from overdraft fees and related revenue streams according to the CFPB.
Limited borrowing options
About 80% of this revenue comes from bank customers with accounts that are often overdrawn. These accounts frequently become overdrawn when money is withdrawn at ATMs, which indicates that many people see overdrafts as convenient but expensive short-term loans. Many consumers who pay frequent overdraft fees are unable to qualify for more affordable loans, and many of them choose to file for bankruptcy when their financial situations become unmanageable.
A fresh financial start
People often turn to credit cards to pay for necessities and use overdrafts as a form of short-term borrowing when they are struggling to make ends meet. This kind of behavior provides temporary relief, but it makes financial situations much worse in the long run. Personal bankruptcy offers consumers who have suffered financial setbacks the possibility of a fresh start, and filing a Chapter 7 or Chapter 13 petition puts an immediate end to daily harassment from debt collectors.
