Back when the Federal Reserve adopted rules forcing banks to make customers opt in to overdraft “protection,” it looked like a press win might break the back of a $40 billion a year scheme that charged 4,500 percent APRs for what were effectively short-term loans and hit poorer customers disproportionately.

But we warned that the banks would do whatever it takes to mislead customers into opting in to overdrafts:

Of course, how effective this new regulation will be at squelching this disaster for consumers is largely dependent on whether the Fed forces banks not to mislead, I mean “market,” overdraft “protection.” Some required boilerplate explaining first the costs of doing so, including that the average household in America pays $368 in overdraft fees every year, ought to put any subsequent spin in context. Its effectiveness will also depend on whether the Fed forces banks to end overdraft protection for existing customers and make them retroactively opt in. The press needs to pay close attention to this stuff and not walk off with the trophy just yet.

Yeah, well. You can’t say we didn’t warn you.

The Wall Street Journal reported a few days ago that banking-industry consultant Moebs says that a stunning 75 percent of customers have opted in to overdraft protection, which would mean all those pieces about the demise of “free checking” may have been premature.

Meantime, the Journal’s piece is a good example of how not to do a story.

First, the whole thing is centered on information from Moebs, which we’re told is a “a Chicago bank-industry consulting firm.” That doesn’t cut it. In fact, Moebs consults banks on how to get overdraft money from their customers. Check out the website for its “No Bounce overdraft service.” So, Moebs has an interest in it looking like scads of people are opting in to overdraft services, on which it makes money. The WSJ really should have pointed that out.

And it accepts the banks’ frame uncritically. Here’s the lede:

As the holiday-shopping season kicks off, there is one thing most consumers won’t be leaving home without: an overdraft cushion.

Rather than face the embarrassment of being declined a purchase, 75% of consumers are opting to pay a fee—sometimes as much as $34—each time they overdraw on their debit-card account, according to Moebs Services Inc.

But is that what’s going on here? Daniel Indiviglio of The Atlantic would have you think so, in a piece that even the American Bankers Association flacks might flinch at. Here’s his headline:

Why Americans Love Overdraft Fees

And his armchair explanation of “American consumer psychology” (emphasis mine):

This result paints a rather fascinating portrait of American consumer psychology. There are at least two conclusions to draw here. First, this shows the high value most Americans assign to appearing financially healthy in today’s society. They would prefer pay a clearly exorbitant fee rather than endure the embarrassment of not being able to make a purchase. This isn’t shocking. Americans are a proud bunch. The “keeping up with the Joneses” paradigm is one that has been thriving for some time. No one wants anyone to know that they can’t afford something that they want to buy.

Second, it shows that most Americans aren’t that sensitive to financing costs if the fees allow them to buy something they really want. But again, we already knew that. After all, Americans love affair with the credit card began back when credit card companies were under less strict regulation than that with which they must now contend. And when you think about it, overdraft fees are just big one-off financing costs, because the bank is giving you credit beyond the money your checking account contains. If high interest rates and penalties didn’t stop Americans from buying more than they could afford before, then why should overdraft fees?

Yeah, this may be true for a few, but what’s a more likely explanation—one that neither Indiviglio nor the Journal bothers to mention? The misleading marketing I mentioned up top.

Here’s a letter sent to who knows how many millions of Chase customers by press darling Jamie Dimon:

“Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you,” the message, emblazoned in large red type, warns. “If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with “even in an emergency” underlined for emphasis.

And then there’s the in-person hard sell:

A spokesman for Chase said: “We have begun to reach out to customers and are encouraging them to sit down with a branch banker to make sure they understand overdraft services, which can be confusing. We want them to make an informed decision.”

When consumers get to the bank, another pitch awaits. Mark Sorenson went into a Dallas branch of Bank of America to turn off the overdraft function on his debit card recently and got a distressing response.

Beware, his banker cautioned. If Mr. Sorenson used the card to buy gas, the station might place a hold on his account and he might not be able to fill up at all, even if he had enough money in the bank to cover a full tank.

“My impression was that it was something he’d been briefed on,” said Mr. Sorenson, an architect who said he had tired of paying multiple fees when the bank automatically covered shortfalls on his debit card. “He was trying it out on me.”

Those anecdotes were reported by The New York Times in an excellent piece in February by Andrew Martin and Ron Lieber.

The Wall Street Journal’s Robin Sidel had an excellent piece this summer on the bottom feeders advising the banks on how to keep their gravy train running (emphasis mine):

In March, more than 200 banks paid $199 each to participate in an Internet seminar hosted by David Peterson, a banking-industry consultant who advises banks to consider bundling overdraft protection with other services for a monthly fee. A 40-page presentation that accompanied his lecture includes a profile of a typical overdraft user, described as a person who doesn’t pay attention to account balances, lives paycheck to paycheck, and will engage in a transaction despite knowing it will generate a fee.

The seminar also includes several pages detailing the “five stages of overdraft grief,” which includes “shock and denial,” “pain and guilt,” “anger and bargaining,” “depression” and “acceptance.”

That’s nothing more than textbook predatory lending—an awful lot like the payday-loan industry: Get poor people on a debt treadmill that they can’t get off and suck them dry with usurious interest rates couched as fees.

Alas, pieces like the NYT’s and WSJ’s were few and far between, which is why folks like Indiviglio and even the Journal itself can get by with ignoring them.

But all may not be lost. Consumer Union released poll results reporting that 22 percent of bank customers have opted in to overdrafts. The Journal didn’t report that. That’s another big miss, especially given that it relied entirely on a banking industry consultant for its report.

So which is it? Seventy-five percent or twenty-two percent? My guess would be that it’s closer to the former, unfortunately. Moebs says its surveyed banks, who surely have stats on this, while Consumer Union asked consumers themselves.

And I suspect that there are a lot of people who opted in for overdraft protection who don’t know that they did so.

Which is just one more reason why this calls out for more and better press coverage.


Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.