CFPB: Overdraft fees can seriously impact seniors’ finances

A new issue brief highlights the economic instability that overdraft fees can cause for financially insecure seniors, who may have trouble adding any unsuspected expense to fixed, tightly-managed budgets

The Consumer Financial Protection Bureau (CFPB) this week published an issue brief aiming to highlight the specific impact of banking overdraft fees on financially insecure older Americans. The charges — which can be as high as $36 per instance — could derail the often carefully-managed budgets of a population that often lives on a fixed income, the Bureau says.

“Age-friendly banking practices that address the needs of economically insecure older adults are particularly important, given that these individuals are likelier to have tight budgets and experience overdraft fees,” the brief reads in part. “A 2018 Kaiser Family Foundation study estimated that over 15 million older adults ages 65 and over (about 28% of all older adults) are economically insecure, with annual incomes below 200% of the federal poverty level (FPL).”

There are five basic reasons outlined by the brief that illustrate why seniors may be disproportionately impacted by overdraft fees, the brief says. These include a general reliance on Social Security benefits; caregiving responsibilities for someone else that nearly one-fifth (19%) of older adults engage in; experiencing the loss of financial security that can come with the loss of a partner; a fluctuating level of comfort with and access to technology that more financial institutions are adopting; and cognitive impairment that can come from aging.

“Although many older adults are frequent and adept users of financial technology, older adults

are more likely than other age groups to bank in person, and are less likely to use online and

mobile banking services,” the brief reads on the technology point. “Individuals who do not use online or mobile banking to monitor their accounts might not realize they are overdrawn until they get a paper statement in the mail several days or weeks later.”

While the vast majority of older Americans are perfectly able to manage their finances on their own well into their later years, roughly 22% of individuals at or over the age of 71 experience cognitive issues to such a degree that it could interfere with their ability to manage their finances on their own.

“[F]inancial skills are among the first abilities to decline with even mild cognitive impairment,” the brief reads, based on a study published in JAMA Internal Medicine and published by the National Institutes of Health (NIH). “Individuals experiencing cognitive impairment may unintentionally double-pay a bill, pay the wrong bill, pay too much, or may experience other challenges that make it difficult to manage their money and avoid overdraft.”

In terms of a conclusion and recommendation, the brief lauds recent actions that financial institutions have made in this area but insist that there is more to do.

“Financial institutions’ overdraft and related practices should promote financial health for older

adults rather than erode it,” the brief says. “Over the past year, a number of banks have made significant changes to their overdraft programs, but harmful practices persist.”

Read the issue brief at the CFPB.

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