The way a financial institution may choose to handle overdraft fees can vary widely from place to place. Some banks and credit unions charge incredibly high overdraft fees with how many can accrue per day while others waive fees altogether for certain dollar amounts. Most practices fall somewhere in between the two extremes, as is the case for the Capital One Next Day Grace program.

What Are Overdraft Fees?

Overdraft fees are assessed on a customer’s account when a transaction causes the account balance to dip into the negative. Rather than denying the transaction, the bank or credit union pays for the transaction then charges the customer an overdraft fee for the service so the transaction is paid and not denied.

In some cases, this can be very helpful to customers when they need a particular transaction to post and not be rejected. But many times, these overdraft fees are incurred when a customer makes a small purchase and the balance goes slightly into the negative.

For example, a customer may have $30 in the account and fills up on gas for $35, bringing the account to $5 in the negative. Then, he may go into the convenience store to buy a $2 coffee, causing the account to be $7 in the negative. For these purchases, if his financial institution charges $35 per overdraft fee, he would be charged a total of $70 to make these two lower dollar purchases.

Overdraft fees are a huge income generator for banks and credit unions, and consumers believe that these high fees are unfair. In fact, the Consumer Financial Protection Bureau (CFPB) has been investigating these practices at various financial institutions.

Overdraft Fees at Capital One: Capital One Next Day Grace

Capital One is one of several financial institutions that offers a variety of overdraft protection programs. They offer four different ways to handle transactions large enough to overdraw the account.

According to the Capital One website, one option that consumers may choose is auto-decline. Instead of actually paying for the transaction, Capital One will automatically decline the transaction so an overdraft is not paid. The second option is free savings transfer. If customers have a savings or money market account, the amount overdrafted can be pulled from a linked savings or money market account to pay for the transaction, and customers incur no fees.

A third option is an overdraft line of credit. With this option, funds are transferred from a line of credit to cover the transaction. Customers pay interest on the overdrafted amount for the length of time it takes them to pay back the funds.

And finally, the Capital One Next Day Grace program allows customers to have a full business day to replace the amount they overdrafted before being charged a $35 overdraft fee. Most banks and credit unions do not offer a grace period for transactions like the Capital One Next Day Grace option.

In general, the Capital One Next Day Grace option and the other options offered by the financial institution give consumers a variety of ways in which to handle overdraft fees. Other institutions do not offer the flexibility, and simply charge fees on each transaction, with fees ranging from $10 per overdraft to $38 per overdraft.

Additionally, other institutions have been accused of improperly reordering transactions in order to maximize overdraft fees. In the example above, if a customer paid $2 for their coffee first, bringing their checking account balance to $28, then purchased gas for $35, only one overdraft fee would be incurred if the transactions were posted in order.

However, for some banks and credit unions that processed the transactions out of order, often posting the largest transactions first in order to maximize profits from overdraft fees, the gas purchase would have been processed before the coffee purchase, causing two overdraft fees to be incurred and allowing the bank or credit union to double its fees for its overdraft service.

Are You Being Charged for Improper Overdraft Fees?

Capital One has already been subject to at least one class action settlement over allegations that it reordered transactions in a way that increased the number of overdraft fees it could assess.  If you believe Capital One or another bank or credit union may be improperly charging you overdraft fees by engaging in practices such as reordering transactions, you may be eligible to seek legal compensation. An attorney familiar with these practices can review your case at no charge and can help you understand if you are eligible to take further legal action.

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