Top Class Actions’s website and social media posts use affiliate links. If you make a purchase using such links, we may receive a commission, but it will not result in any additional charges to you. Please review our Affiliate Link Disclosure for more information.
NSF Fee Overview
An NSF fee is charged when a check is presented to the bank or credit union and the account does not have enough money to cover the amount, colloquially known as a “bounced check”. The “NSF” stands for “non-sufficient funds.”
When a check bounces, it is returned to the merchant or other party to whom it was made. For example, John Depositor writes a check or initiates an ACH or electronic check transaction to Merry Merchants, Inc. for a $150 purchase – however, by the time Merry Merchants presents the check for payment, John’s account contains only $100. The bank refuses to honor the check, returns it to Merry Merchants, then charges John an NSF fee. Merry Merchants may also charge a fee and pursue legal action as well.
There are a number of other fees and policies that financial institutions can apply to similar situations.
OD Fee
This stands for “overdraft fee,” and is similar to an NSF fee in that it is charged when there are insufficient funds to cover a transaction. There is one important difference, however. The bank or credit union charges an OD fee when it advances funds to the depositor in order to cover the transaction. Using the foregoing example, John’s bank agrees to cover the $50 shortfall by essentially making a short-term loan, so his check to Merry Merchants does not “bounce.” For providing this service, the bank charges John a fee, generally between $27 – $35.
Returned Payment Fee
This is similar to an NSF fee, except that it is charged by the party to whom the check was written (see above).
Overdraft Protection
Overdraft protection refers to programs through which the bank or credit union agrees to cover transactions (paper checks, ACH or electronic or ATM withdrawals and purchases) when there are insufficient funds in a depositor’s account. According to Investopedia, under many state-level regulations, a depositor must agree to participate in an overdraft protection program.
Reordering Transactions
This is a deceptive, but nonetheless legal practice in which banks and credit unions process transactions out of order to maximize fees, according to Forbes. Instead of processing transactions as the come in, these institutions do them by the amount, processing the largest ones first, making it more likely the account will be overdrawn.
Linked Transfer Account
A linked account can help a depositor to avoid incurring an OD or NSF fee. It is an arrangement by which a depositor arranges for funds from a secondary account (such as a savings account) to be automatically transferred to a checking account in case of insufficient funds in the latter. Banks and credit unions charge fees for this service as well, but it is usually much lower ($2 or so per transaction).
The NSF fee, as well as other fees and policies, have become a major source of income for banks and credit unions — and a thorn in the side for many consumers, as the practice of charging this fee has allegedly been abused. NSF and OD fees are not always understood by consumers, thanks largely to the use of fine print and misleading contacts and depositor agreements, leading to several bank fee lawsuits as well as increasing regulation on part of the government.
