What was designed to be a customer-friendly service that kept a person from suffering the momentary embarrassment of a bounced check or declined debit card transaction has turned into big bucks for banks and credit unions.

In fact, overdraft fees from overdraft coverage are some of the steepest fees that banks charge and one of the primary ways financial institutions make money.

About Overdraft Programs

Overdraft protection is a service offered by banks that allows checking account holders to temporarily make purchases with a debit card even if they don’t have sufficient funds in their account to cover them.

In effect, the bank makes a short-term loan to the account holder so his debit card isn’t declined at the register or an ATM machine. In return, the bank charges overdraft fees ranging from $10 to $35 typically.

Some banks and credit unions, like Pentagon Federal Credit Union, offer overdraft lines of credit, meaning you pay interest on just the overdrawn amount, instead of a fixed fee.

Other financial institutions simply don’t allow you to overdraw your account at all. This means a transaction gets rejected if there isn’t enough money and you might get hit with a non-sufficient funds fee.

Pentagon Federal Credit Union: No Overdraft Fees?

Pentagon Federal Credit Union, widely known by its abbreviated name PenFed, is a United States federal credit union headquartered in Tysons, Virginia, chartered and regulated under the authority of the National Credit Union Administration (NCUA).

PenFed is the nation’s third-largest federal credit union, with assets of over $25 billion and approximately 1.9 million members, according to Segmint.

Although military personnel and their families make up Pentagon Federal Credit Union’s core membership base, the credit union is open to anyone who is eligible to join.

In addition to a variety of loans, savings, and deposit accounts, Pentagon Federal Credit Union also offers credit cards and other financial services.

The credit union doesn’t have automatic overdraft services, so customers pay a non-sufficient funds fee of $30 or uncollected funds fee of $10.  Qualified members though can enroll in overdraft protection, which is essentially a $500 line of credit extended from the credit union.

Additionally, PenFed offers a “money-saving feature” for members serving in the Active, Reserve, and National Guard components of the U.S. uniformed services.

Called Warriors Advantage, the program waives the fees on PenFed checking accounts in case of insufficient funds, uncollected funds, and returned ACHs for up to two occurrences in a rolling three-month period.

If there are three or more such occurrences within the same three-month period, the member must have no additional incidents for the following six months in order to re-qualify for the fee waiver.

According to PenFed, this fee waiver is in addition to the $500 overdraft line of credit PenFed automatically provides to all qualifying members.

Tired of Overdraft Fees?

Nearly everyone has been slapped with an overdraft fee at some point in their lives.  Banks may rely on a customers’ oversight and can be extremely sneaky in finding ways to help customers overdraft their accounts, including reordering transactions or charging excessive overdraft fees.

Depending on bank policy, each overdraft charge will result in a fee with a maximum cap being three or four fees per day. If each overdraft fee comes at $35 and you don’t max out until four charges, that’s $140 in possible excessive overdraft fees.

And if that isn’t bad enough, some banks and credit unions engage in a process known as reordering transactions. Essentially the financial institution reorders charges so the largest amounts are paid first which creates a series of overdraft fees that would not have occurred otherwise. This allows the banks to maximize overdraft fee income.

Some consumers have taken action against these practices by filing overdraft fee class action lawsuits, with significant success. In May 2021, Bank of America agreed to pay $75 million to resolve claims that the bank charged unfair overdraft fees through deceptive practices.

If you think your bank or credit union has charged you unfair or improper overdraft fees, particularly multiple overdraft fees over a short period of time, an experienced consumer rights attorney can evaluate your case at no charge and discuss your legal options.

The Bank of America Overdraft Fee Class Action Lawsuit is Morris, et al. v. Bank of America NA, Case No. 3:18-cv-00157, in the U.S. District Court for the Western District of North Carolina.

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