Many consumers don’t realize they can opt out of overdraft protection that could be costing them a lot of money.

According to a new study from Pew Charitable Trusts, most overdraft programs don’t meet the consumers needs, nor do customers fully understand the programs.

Pew’s study found that almost three out of four consumers didn’t realize they could choose to have transactions declined without a fee, or opt out of overdraft protection, if their account lacks sufficient funds to cover a debit card or check purchase.

Nearly one in three consumers who incur overdrafts do so unintentionally, or as a way to borrow relatively small amounts of money. Unfortunately, many of these individuals are under a lot of financial stress, which is compounded by the fact they might have few choices when it comes to choosing a funding source.

HSBC and Capital One are among the banks currently under investigation for possibly using improper overdraft practices.

In October 2016, HSBC agreed to a $32 million class action lawsuit settlement. The settlement was intended to repay customers who had paid a minimum of one overdraft fee from December 2004 through June 2007. Despite refusing to admit wrongdoing, HSBC is the subject of another investigation for possibly manipulating its programs to increase the number of overdraft fees.

Unfortunately, as Pew has found, HSBC and Capital One are among the financial institutions making big bucks off of consumers who are living paycheck to paycheck. These people are the least apt to be able to afford the extra fees.

Despite marketing their overdraft programs as “protection” for consumers, banks are the real winners. Years ago, financial institutions made money from high interest rates. When those interest rates fell, banks found another way to rake in money by charging overdraft fees.

The bank’s point of view is they are protecting consumers from any potential embarrassment or inconvenience of experiencing a transaction decline at the point of purchase. Savvy consumers, however, say they would rather have a small transaction such as a $15 haircut declined rather than an incur a $35 overdraft fee. These consumers would have preferred to opt out of overdraft protection, and should be allowed to do so.

Opt Out of Overdraft Protection to Save Money

If you are a consumer who would rather have a transaction declined rather than incur an overdraft fee for an ATM or debit card point of purchase, you should opt out of overdraft protection.

According to Pew Charitable Trusts, heavy “overdrafters” are defined as those who incur at least three overdrafts per year. Pew says, “Most of the heavy overdrafters – as well as nearly 70 percent of all consumers who paid debit card overdraft fees in the past year – did not know that they have the right to have debit transactions declined at no cost.”

Of those who would prefer to opt out of overdraft protection, fewer than 30 percent have discussed alternative options with their financial institution this past year.

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