Overdraft programs are a common feature of banks and credit unions, and the amount of money bank overdraft fees rake in each year is rapidly increasing. Indeed, in 2017 alone, consumers paid a whopping $34.3 billion in bank overdraft fees. This is the highest that bank overdraft fees have been since the end of the recession in 2009—up from $33.3 billion in 2016.

This increase in annual bank overdraft fees isn’t necessarily caused by an increase in customers overdrawing their accounts, as might be the assumption. According to Moebs Services, this rise in overall annual bank overdraft fees has more to do with banks and credit unions increasing the cost of the fees. Indeed, the average overdraft fee for banks has risen from $20 in 2000 to $30 in 2017.

According to the Consumer Financial Protection Bureau, excessive bank overdraft fees can be the worst for the consumers without much in their bank accounts, who can least afford such fees.

“Consumers living on the edge can find themselves racking up numerous overdraft charges,” said former CFPB director Richard Cordray. “Despite recent regulatory and industry changes, consumers with low account balances and little margin for error continue to pay significant overdraft fees.”

What is an Overdraft Protection Program?

So where do all these bank overdraft fees? If consumers are signed up for a bank’s overdraft protection program, they are charged bank overdraft fees when they overdraw their account, allowing them to make the transaction despite not having the money in that account—for a set overdraft fee. Essentially, this allows consumers to cover transactions when they normally would have hit the bottom of their account by transferring money from a linked account or loaning money from the bank.

Unfortunately, bank overdraft fees may not be beneficial for everyone. In some cases, a bank or a credit union may employ deceptive practices to wring the highest amount in bank overdraft fees out of their consumers.

Deceptive Overdraft Practices

Banks can use several methods to charge their customers extra bank overdraft fees, other than simply raising the fee itself.

In some cases, customers are not informed of how the overdraft program works. When customers sign up for an account, they may not be told all the details of the program or its associated fees. Others may not even be informed that they have the ability to opt out of the overdraft protection program—although voluntarily opting in to an overdraft protection program has been required since August 2010.

Some banks may rearrange transactions to collect more in fees, deliberately skewing the order of customers’ transactions to incur the greatest number of fees possible. When a bank rearranges transactions from highest to lowest rather than from first to last, each transaction is increasingly more likely to overdraw an account. A large fee processed earlier can tip a customer to overdraw their account earlier, with even more transactions left to be charged an overdraft fee. These bank overdraft fees then compound, and customers are left with a much heftier sum to pay.

Filing an Overdraft Lawsuit

A number of financial institutions are being investigated for the use of unfair or deceptive overdraft practices, including HSBC Bank, Capital One, UMB Bank, Boeing Employees Credit Union (BECU), America First Credit Union, and several others.

If you were also affected by deceptive or unfair bank overdraft fees at these or other financial institutions, you may be able to file a class action lawsuit to pursue your own compensation.

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