Paul Tassin  |  February 9, 2016

Category: Consumer News

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Illustration depicting a highway gantry sign with an overdraft concept. Blue sky background.Confusion over overdraft fees is nothing new. But it can mean big revenue for credit unions willing to exploit it.

Overdraft protection is a service provided by credit unions that addresses transactions that would overdraw a credit union checking account.

Without overdraft protection, credit unions would normally decline to honor the transaction, and the member would be assessed a fee for insufficient funds, or NSF fee.

As an alternative, overdraft protection allows the credit union to pay the transaction, sometimes with funds from a linked account or by immediately extending the member a line of credit. This service generally comes with a fee charged per transaction.

Members who use overdraft protection may be able to avoid other fees associated with a bounced check, like returned item fees. The overdraft fee itself is likely to be comparable to the NSF fee, however.

Credit unions generally need their customer’s opt-in before they can charge overdraft fees, but the rules vary depending on the type of transaction. They do not need their customers to opt-in to charge them an overdraft fee for covering checks or certain types of recurring electronic bill payments that would overdraw the account.

But for transactions made via debit card or ATM card, the credit union cannot charge an overdraft fee unless the customer opts in to overdraft protection.

For example, take Suncoast Credit Union, a regional credit union in Florida. With their credit union checking account, Suncoast offers a service called Overdraft Privilege, which protects members from bounced checks. However, each transaction covered by Overdraft Privilege costs the member a “Paid NSF” fee of $29 per transaction per day. And Overdraft Privilege is only available to qualified members.

American Airlines Credit Union offers what it calls “Bounce Protection.”  Bounce Protection is included with AA’s credit union checking account to cover overdrafts via check and ACH transactions, but it comes with a fee of $25 per transaction. Members have the option of getting Bounce Protection Plus, which extends protection to debit card and ATM card transactions – for the same $25 fee.

It’s possible some current credit union members may have opted into overdraft protection without realizing it. For accounts opened since July 2010, members may have signed an agreement to use overdraft protection in the course of filling out the new account paperwork.

New Regulations of Overdraft Fees

Some financial institutions have been manipulating the way they charge overdraft fees in ways some consider abusive. For example, changing the order in which transactions are processed may increase the number of transactions that overdraw the account.

If a credit union processes a set of transactions from largest to smallest, that order may deplete the account earlier and cause more transactions to be overdrafts.

Fortunately, the Consumer Financial Protection Bureau is doing something about these practices. After spending three years studying overdraft fees, the Bureau is now working on new regulations to rein in bad overdraft fee practices.

One option the Bureau is considering would be to dictate the order in which credit unions could process transactions. Another option would improve the ways credit unions disclose the terms of their overdraft protection arrangements, so that members would better understand their options for opting in or out.

Do YOU have a legal claim? Fill out the form on this page now for a free, immediate, and confidential case evaluation. Some of the credit unions being investigated include, but are not limited to:

State Employees Credit Union

Pentagon Federal Credit Union

Boeing Employees Credit Union

Alliant Credit Union

Star One Credit Union

First Technology Federal Credit Union

America First Federal Credit Union

Randolph Brooks Federal Credit Union,

Suncoast Credit Union

Randolph Brooks Federal Credit Union

American Airlines Federal Credit Union

Mountain America Federal Credit Union

Vystar Credit Union

Space Coast Credit Union

Patelco Credit Union

The attorneys who work with Top Class Actions will contact you if you qualify to let you know if an individual lawsuit or class action lawsuit is best for you. Hurry — statutes of limitations may apply.

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