A study by researchers at Boston College found that automatically enrolling UK bank customers in text alerts cut overdraft and unpaid item charges by 4-19%. This reduction could save consumers across the country $213 million to $300 million a year, or £170-£240 million at the time of the study in 2017.
The experiment reviewed transactions from six of the UK’s largest banks, focusing on 2017. The biggest benefits went to low-income customers, frequent overdrafters, and financially vulnerable households—the groups policymakers most want to help.
“Overdrafts are common but costly,” the researchers explained. “Automatic alerts give customers significant savings without hurting them in other ways.”
The Cost of a Slip-Up
Overdrafts happen when a bank covers a transaction even though the account has insufficient funds. In 2017, UK banks charged daily fees of $6-$12 and interest rates of 11-67%, along with unpaid item penalties of $6-$31. Together, these charges added up to $3.26 billion (£2.6 billion) that year. Customers in poorer areas bore the brunt, with the heaviest users in 2016 paying an average of $468 in unarranged overdraft fees.
The Financial Conduct Authority (FCA) found that banks’ markups on overdrafts were three times higher than on credit cards or personal loans. Studies also showed that many customers had cheaper borrowing options available but failed to use them, often because they simply didn’t notice their account balances in time.
To address this, the UK’s Competition and Markets Authority (CMA) required banks to auto-enroll customers in text alerts starting in 2018. The FCA later expanded this rule to cover more banks and situations.
Will Banks Play Fair?
The study didn’t examine how banks might respond to losing revenue from fewer overdraft charges. Some fear they could raise fees elsewhere to make up the difference.
But the researchers are hopeful, pointing to the U.S. experience with the CARD Act of 2009. The law reduced hidden credit card fees, but U.S. banks did not raise other charges in response.
The alerts worked, but not perfectly. Customers had enough money to avoid more than half of their overdrafts, often by tapping savings or lower-interest credit cards. Even so, banks still made money from consumer mistakes.
“Text alerts help, but they’re not a complete solution,” the researchers said. “More steps are needed to fully protect consumers.”
A Similar Fight in the U.S.
The U.S. is taking its own steps to address overdrafts. In December 2024, the Consumer Financial Protection Bureau announced new rules, effective October 2025, requiring large banks to either cap overdraft fees at $5, limit fees to their costs, or disclose the effective interest rate of any charge. Whether these rules survive an incoming administration remains uncertain.
Text alerts and fee caps are promising tools, but the fight against overdraft charges—one of the priciest and most regressive forms of borrowing—is far from over.
