Consumer advocates have long said that banks' overdraft protection programs target lower-income, uneducated consumers.
But Lisbon Hardy, the president of the $512 million-asset Farmers Bank and Capital Trust Co. in Frankfort, Ky., was not so sure that was true at her bank, and she decided to challenge that assertion.
In December, Farmers conducted an examination of the 300 customers who used its overdraft protection program most frequently. The examination, whose results were released in March, found that many of the most avid users are well-paid professionals, including dentists, judges, lawyers, and restaurant owners.
It also found that some customers are spending thousands of dollars on overdraft fees each year.
One retail customer paid $6,800 in the first 11 months last year. At roughly $25 an overdraft, that works out to an average of about 22 bounced checks a month. The top business customer paid $8,825 of fees.
The smallest total racked up by any of the 300 customers it analyzed was about $900 a year, or roughly three nonsufficient funds charges a month, assuming a $25 average.
Ms. Hardy said these results surprised her, since the common perception was that only cash-strapped, less affluent customers overdrew their accounts.
"Its truly a cross-section of every customer," she said. "People that we would have never thought the policy pertain to them were overdrawing regularly."
Farmers started its Overdraft Advantage program in late 2000 and extended it to business customers in September 2003. The program uses software and services from BSG Financial LLC in Louisville. Ms. Hardy said that almost all of her company's 11,000 checking account customers now have the protection, which covers overdrafts of up to $500.
Jean Ann Fox, the Consumer Federation of America's director of consumer protection, said Farmers' analysis does nothing to refute her group's claim that these programs hurt low-income consumers the most.
As she sees it, few low-income consumers would be in the top 300, since they make less money and therefore cannot afford to pay $100 a month in overdraft fees. (Farmers customers who were delinquent on their overdrafts for more than 30 days were not included in the analysis, since their rights to use the program are suspended.)
While affluent people may be overdrawing more frequently, lower-income people are hurt more by overdrafts, since the $25 fee is a much larger chunk of their income and often cannot easily be paid off, she said.
A better analysis would be to look at a random sampling of the customers to find out the demographics of an overdraft customer, Ms. Fox said. When the Consumer Federation conducted a survey of 1,000 consumers last summer, it found that the typical overdraft user made between $25,000 and $50,000 a year and was under 30.
Farmers' analysis is "like a car dealer saying that their most popular car is a Cadillac, because that's what the customers spending the most are buying, when in reality most people are driving Honda Civics," she said.
