Grace Periods, Proactive Approaches Help Consumers With Overdrafts and Account Management

The data show that 20% of individuals have overdrawn their accounts in the past year as they grapple with the demands of inflation, of timing cash flows with their monthly bills and everyday spend.

Non-sufficiency of funds, of course, can lead to a negative impact on banking customers, as they may be unable to get the goods and the services they need, when they need it. And of course, there’s the specter of overdraft fees.

To that end, grace periods and data-driven proactive approach — somewhat of a collaboration between provider and customer — can blunt the impacts of being overdrawn.

As noted in “The Credit Accessibility Series: How Consumers Use Overdrafts,” a PYMNTS and Sezzle collaboration, 39% of paycheck-to-paycheck consumers who struggled to pay bills experienced transaction declines and overdrafts, compared to 6.3% of those not living paycheck to paycheck. As for the fees themselves, PYMNTS data shows that 62% of consumers who attempted a transaction without sufficient funds incurred some type of overdraft fee: 45% of consumers incurred a flat fee, and 27% incurred a fee equal to a percentage of the transaction. But the math shows, too that more than a third of overdrawn consumers did not encounter those fees — which implies that providers are not levying those fees across the board, so to speak.

Fees, Yes — But Not Across the Board

As detailed here, that “non-blanket approach” has been reflected in the fact that bank overdraft revenue fell by roughly 48% as measured in the fourth quarter of 2022 compared to the same period before the pandemic. For the full year, the Consumer Financial Protection Bureau (CFPB) said banks reported around $7.7 billion in overdraft and nonsufficient-funds fees, a 35% drop from 2019. Banks have been exiting this revenue source, as announced through the past several months such as Citigroup and Bank of America. Other firms, such as Truist, have introduced account structures that offer “buffers” against overspending.

In the meantime, even for the providers keeping those fees in place, there’s been a re-tooling of how they’re used. TD Bank, by way of example, and Wells Fargo, in addition to Regions Bank, allow for grace period to exist before the fees set in. Separately, Dave, a digital banking and personal finance app, offers short-term cash advances that help users bridge the gap if funds in the account are outpaced by payments.

The banks, of course, have the data in hand to decline transactions, and to provide proactive alerts that warn, through push notifications, when balances are running low. The best defense against becoming overdrawn is to have real-time visibility into account status — where management of the balances and spending is less a guessing game than a fully-informed decision.