Banks Could be More Retiree Friendly

Anyone who has lived paycheck to paycheck is familiar with the headache of overdraft charges.

Due to a slight miscalculation at the end of a tough month, there isn’t enough money in the account to cover a check. The bank pays the check but charges an overdraft fee that drains money out of the account. A negative balance would trigger an overdraft fee on a different check or cause it to bounce.

Of course people should manage their finances responsibly. But the federal Consumer Financial Protection Bureau (CFPB) argues that older people in particular are at a disadvantage, and perhaps banks should put practices in place that protect them from overdrafts, which the CFPB said produce billions in revenue every year. The agency has also clarified existing regulations to prevent what it calls surprise overdraft fees, including fees charged to customers who write a check that bounces because they deposited someone else’s check that then bounced.

Banks “should promote financial health for older adults rather than erode it,” the agency said. Some institutions have made changes but more could be done. One suggestion: alerting an account holder’s trusted relative or caregiver when a bank balance is dangerously low.

Overdraft fees range from $15 at smaller banks to $35-$37 at major institutions. Some banks limit the fees they charge in a single day to one, but some will charge as many as six a day. “Social Security and a small pension,” a retired steelworker complained to the CFPB, “do not provide extra funds sufficient to pay for any of the cited ‘junk’ fees.”

Retirees’ checking accounts could be handled more carefully for a few different reasons. If they rely heavily on Social Security, they don’t have a big cushion in their checking accounts and must navigate an irregular deposit date for their Social Security checks.

Overdraft fees can result if a bill’s automatic payment date on, say, the 15th of the month, doesn’t match up with the Social Security deposit date on the third or fourth Wednesday of the month. One study also found that retirees often spend the money soon after the check comes in and don’t have enough for their other bills.

Some older Americans have become savvy about electronic banking, which makes it easy to check on an account balance. But they’re still a minority. Only 8 percent use mobile banking and only 25 percent bank online. This creates another vulnerability, the CFPB said, if they don’t “realize they are overdrawn until they get a paper statement in the mail.”

Retirees who aren’t comfortable on the internet will also have trouble canceling a scheduled bill payment for a service they no longer use. And resolving issues by telephone is an infuriating process, the CFPB pointed out. Try calling a bank with a five-layer decision tree if you’re cognitively impaired or your hearing is poor.

The agency said it will continue to track consumer complaints about overdraft fees. So if you have a complaint, submit it here.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.