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Consumer Preference for Being Declined

According to a recent survey, consumers would prefer to be declined when using their debit card rather than be hit with an overdraft fee. This preference occurs regardless of the purchase price.

The results of the survey, conducted by The Center for Responsible Lending, were released in mid-April.

I have covered overdraft fees before in a number of posts, including Overdraft Protection and Colleges Add to the Overdraft Loan Problems. Banks offer many options to handle overdrafts. Unfortunately, the survey found that most respondents are currently enrolled in the most expensive option, a fee-based overdraft loan program that covers overdrafts in return for a $34 fee. People with lower incomes were in this category in even higher percentages.

Alternative options, such as linking your savings or credit card account to your checking account, are often available at much lower cost. The least expensive option of all, declining purchases that would result in an overdraft, is one that most consumers would prefer. Currently, overdrafts are typically approved and a fee is assessed. This is similar to the way credit limits don’t actually limit spending, but rather just trigger fees. 80% of those surveyed would rather have a $5 purchase declined than have it be approved but incur a $34 overdraft fee. Similar percentages (79% and 77%) were found for purchase amounts of $20 and $40, respectively.

Banks often tout their overdraft protection services as protecting consumers from an embarrassing decline of credit. I would much rather be embarrassed than hit with a huge fee. The majority of survey respondents agree. Review your bank account’s overdraft protection features to find the best option for your situation.

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