It may sound unusual to say that the cost of paying for a payday cash advance is cheaper than paying for an overdraft fee in banks. The Federal Deposit Insurance Corporation (FDIC) published the results of their two-year study regarding the use of overdraft programs operated by their supervised banks. Their study revealed that a typical bank has overdraft fees that are more expensive than paying interest fees and other additional fees for a payday cash advance.

The FDIC is managed by a five-person Board of Directors, who are directly appointed by the US President and confirmed by the Senate. This study by the FDIC on Bank Overdraft Programs was initiated in 2006. This is in response to the rapid growth of automated overdraft programs where the bank honors a customers overdraft obligations by using standardized procedures through non-sufficient fund (NSF) transactions. All data and information gathered was based on a survey from 1,171 FDIC supervised banks and separate data requested from customers from 39 other banking institutions.

In the study conducted by the FDIC, they have found that a typical NSF check can result in overdraft fees and interest as high as 3,500% APR. These are the results of the study:

• $20 overdraft fee = APR of 3,520%

• $60 ATM overdraft = APR of 1,173%

• $66 check overdraft = APR of 1,067%

In addition to these numbers, the study revealed that most of the customers who incurred these charges belong to the low-income with a median annual income of less than $30,000. Furthermore, the study also found that, unlike payday cash advance companies, at least 75.1% of banks automatically enrolled customers in overdraft programs that carry APRs and other fees more expensive than a typical payday cash advance.

Other essential findings that the FDIC revealed in their study include the following:

• 90% of the banks surveyed allow NSF transactions without informing the consumers and less than 8% of  the banks inform consumers that funds are insufficient before extra charges are imposed.

• There are about 12.5% of banks who have received consumer complaints about automated overdraft programs.

• 9% of consumer accounts have (10) NSF transactions during a 12-month period and 4.9% had (20) or more NSF transactions. The accounts who incurred 20 or more NSF transactions were charged $1,610 per year.

This study by the FDIC shows that payday cash advances are a good and reasonable financial resource option. It shows that they have significantly less expensive rates compared to traditional bank overdraft fees. This retaliates the claims of some critics that these types of financial resource are expensive and predatory. Even so for several years, consumer advocacy groups like the Center for Responsible Lending (CRL), have relentlessly campaigned to ban payday lending in the country which leaves consumers with no other option than to pay expensive bank overdraft fees.