A friend’s daughter was recently purchasing groceries when her debit card was declined. Embarrassed, she stepped out of the line to check her bank balance on her phone. As it turned out, she had an overdraft of $200 — and a $35 overdraft fee on top of that. In a linked savings account, she had more than enough money to pay for the groceries. But, it was too late. She hadn’t transferred the money over in time.
The overdraft fees that affect so many of us have become a hot topic of conversation, and this summer, the Consumer Financial Protection Bureau (CFPB) is reviewing the 10-year-old rule that sets limits on banks’ overdraft fees. This rule, which was adopted in the aftermath of the 2008 Financial Crisis, mandates that financial institutions issuing debit or credit cards must get customers’ permission before enrolling them in overdraft protection programs.
- In 2018, bank customers paid a total of $11 billion in overdraft fees to US banks.
- Today, bank customers incur an average of $35 in charges each time their accounts overdraft.
While the complaint issue categorized as “overdrafts and fees” is only a fraction (less than 5 bps) of all complaints submitted to the CFPB since 2011, companies’ responses to their customers drive much dissatisfaction. In fact, even when a customer is refunded for an overdraft charge, the customer may still have a negative perception of the bank.
With the PositivityTechⓇ platform, my team assessed over one million customer complaints in the CFPB database and homed in on customer complaints related to overdraft fees. By holistically studying this dataset and listening to customers’ voices, we identified findings that make it possible to predict future overdraft fee issues and define preventive actions that can impact customer satisfaction, regulatory relationships, and financial performance.
Listening to Our Customers’ Complaints About Overdraft Fees
First, let’s explore three real-life examples of customers’ complaints about overdraft fees:
When I opened my savings and checking accounts, I specifically requested [the bank] to not allow overdrafts in my accounts… Selecting this option gave me peace of mind since I knew that if I wanted to pay for something but I didn’t have enough money, [the bank] would just decline the transaction and I would know I was running low on my balance. [But] some payments using my savings account were not only not declined, but a ridiculous number of overdraft fees were charged to my account. I did not notice anything because I didn’t receive any text message or email alerting me of the situation.
[My bank] charged a service fee and overdrafted my account twice. I’ve tried calling, chat (waited 20 min)… I thought that I was going to get that service fee waived because I had the requirements within the dates of the same billing cycle.
I knew that I had some significant charges that were going to hit my account, so I transferred $3,000 from my savings account to my checking account… However, the bank still hit me with an overdraft fee… Even though [the representative] stated that the $3,000 was transferred to my account, it was not credited to my account [in time]. [The bank} always holds the funds for a day before crediting them to my account, which seems unethical and illegal.
Understanding the Urgency in Our Customers’ Complaints
Next, we explored the PositivityTech platform’s proprietary Severity Score, an algorithm designed to shed light on the business urgency of a customer complaint and a leading indicator of future adverse actions. We found that customer frustrations related to overdraft fees:
- Are 24% worse than that of the average complaint.
- Are the worst when a customer is closing on a mortgage.
- Have the highest volume when customers’ funds are low.
Challenging Banks’ Assumptions
While many may assume that customers who overdraft are high risk, their narratives and reasons for overdraft show that they are actually a mixture of high- and low-risk customers. By utilizing the PositivityTech platform, we found that customers who share complaints about overdraft fees are:
- Almost 20% less likely to close their accounts due to delinquency.
- Over 40% less likely to fall into debt collection as compared to all complaints.
- 5% more likely to close their accounts.
Responding to all overdraft customers in the same way will drive non-delinquent and revenue-generating customers to look for alternative resolutions.
Responding in a Multifaceted Way
Interestingly, financial institutions responded to many customers who complained about overdraft fees by providing monetary relief, acknowledging the challenges they face in the execution of regulations.
- 45% of overdraft fee-related complaints result in monetary relief to the customer.
- 9% of all CFPB customer complaints overall result in monetary relief to the customer.
Yet, providing compensation to address these issues is not a unilateral strategy that will improve customer satisfaction. Additionally, without improved targeting, monetary relief can be costly and ineffective. With customer complaints about overdraft fees increasing over time, anticipating and avoiding overdraft complaints is critical.
During the last 12 months:
- The average monthly volume of customer complaints about overdraft fees has increased by 300%.
- The average monthly volume of overdraft fee complaints resolved with monetary relief has increased by almost 3x.
With the PositivityTech platform, we have been able to understand customers’ behaviors by listening to their voices. Deeply understanding what our customers are saying drives predictive capabilities, which benefit all business functions; preventive actions that can address customer satisfaction; and regulatory and financial opportunities.
My team and I are ready to meet with you to share more of our findings about the hidden value in customer complaints.
The PositivityTech platform integrates with existing systems so that you can easily bring our platform to your organization. Learn more about it here.