Overdraft protection is not a junk fee

You’re out to dinner at a steakhouse with friends; you’ve been waiting for this meal all day and you’re hungry. You see the calorie counts and prices on the menu and prepare to indulge and splurge. The server then informs you that that there is a 50% service fee you previously didn’t know about. You find this to be ridiculous, because unlike the calorie count, the fee was 100% hidden prior to ordering your food. Pure junk.

You begrudgingly pay the fee, knowing you’re actually buying nearly two entire days’ worth of calories in one meal. But as you pay, you realize you forgot to check your account balance, and now you’re overdrawn.

The silver lining? You added a service called overdraft protection to your checking account. That’s where, for a fee, your payments get honored even when you’re overdrawn. So you were able to pay for this meal without being embarrassed at dinner. That is decidedly not junk.

Overdraft fees have been called unnecessary — and even predatory — by some in state and federal government, who even coined a term for fees that are deliberately obscured and sprung on the consumer at the last minute—“junk fees.” These two punchy syllables are as effective as they are overly broad; after all, who among us likes paying fees and who doesn’t want to eliminate junk?

Connecticut’s credit unions have always stood firmly with consumers, about 1 million of whom are our members. We agree that surprise fees are shady at best, and predatory at worst. They are junk and should be eliminated. It is part of our culture to reduce financial surprise for the consumer, and credit unions will never stop helping people achieve financial well-being.

Which is why such protection from overdrafts does not deserve to be categorized as a so-called “junk fee.”

Americans love convenience, and we should. Living in a country where freedom has been fought for and fortified for nearly 250 years, we believe in the opportunity to pay for those things that make life a little easier for us. In fact, a recent survey showed that 74% of adults in the United States spend more than $4,000 a year on a variety of conveniences like streaming services, food deliveries, ridesharing and more.

Paying an occasional fee to protect the cash flow in your checking account is not just a simple convenience. It is more akin to an affordable insurance policy for your financial well-being. Consumers who choose this service can rest easy knowing they have seamless financial protection when they need it. The fee to deliver this protection should not be lumped in with hidden fees that are only revealed at point of sale, after the buyer has essentially committed to the purchase. This is why overdraft protection must be preserved, not eliminated.

Just as guardrails exist on highways to keep cars from careening off the road, we must provide protective measures that keep our members on their chosen financial path. And people don’t think much about guardrails until one of them saves their life.

Overdraft Protection is a financial guardrail, a safety measure that prevents financial catastrophe. Not having enough money before the next paycheck arrives to pay taxes, mortgage or rent, utility bills and more can bring disastrous financial consequence. By offering this convenient protection in exchange for a nominal fee only when used, we help keep people financially healthy and pointed in the direction of financial independence.

This spells a stark contrast between agreeing to pay a fee when you overdraw your account by mistake and those deceptive surprise fees designed to coerce people into spending more than they intended. We applaud Attorney General William Tong and state and federal lawmakers for seeking to eradicate these surprise fees, and we stand ready to support these efforts.

But we must not let the term “junk fee” lull us into sleepy acceptance of the idea that all fees are unwarranted or predatory. Consumers who value protection from overdrafts choose to pay for that peace of mind.

A number of very large financial institutions have made headlines by eliminating overdraft fees. On the surface this may appear to be a consumer-friendly move. But consider the consequences: we can all suffer the occasional embarrassment of not having the money to pay at dinner, but what about the late fees, repossessions, tax penalties, booted cars and evictions? Those large financial institutions will make up the lost revenue elsewhere. The individual may not recover so quickly.

We call on all policymakers to ensure every consumer has the full and fair opportunity to choose overdraft protection and on financial institutions to use it as an opportunity to help their depositors make better financial decisions going forward. After all, a better depositor makes a better borrower. Peace of mind helps people make more rational, sound choices without panicking or worrying about dire financial consequences.

Most people with this service never need to access it. But having it in place, and knowing customers are well aware of the cost if needed, is one more safety guardrail on the road to a more sound financial future.