Capital One overdraft fees are a prominent concern for many customers across the country, with a class action investigation pursuing potential legal action.

While Capital One overdraft protection is supposed to provide customers with different options to prevent embarrassing card declines and overdrawn accounts, many consumers have alleged the bank had taken advantage of their financial situations with their overdraft protection. Capital One overdraft protections are marketed as giving customers more control over their accounts, allowing the customer to decide what actions to take once their primary account shows insufficient funds.

Capital One Overdraft Options

Capital One’s alternative to overdraft protection is Auto-Decline, which will decline any purchase transactions that will overdraw the customers’ account.

Another Capital One overdraft protection option is Next Day Grace, in which the bank chooses whether or not to cover transactions that would overdraw the customer’s account. This gives Capital One discretion to cover the transaction or not. Coverage of a single transaction incurs an overdraft fee of $35. According to the bank’s website, Capital One typically decides based on the size of the purchase amount and whether or not the account is in “good standing.”

Customers can also opt-in for the Free Saving Transfer option from Capital One overdraft protection programs, which automatically transfer funds from the customer’s secondary account to cover a purchase. Alternatively, customers can apply for a line of credit, which can be used to cover overdraft transactions. In this case, the customer would have to pay back this automated loan with interest based on the amount of time the customer needed for the money.

Overview of Overdraft Protection

Overdraft fees incur when the customer’s primary checking account becomes overdrawn and the bank or credit union advances funds to cover the transaction that overdraws the account. This may happen to cover a small transaction like buying groceries, with banks sometimes giving customers a grace period to replenish their accounts before being asked to pay the overdraft fee.

Overdraft protection can benefit customers by allowing transactions to go through that would otherwise be declined. However, consumer advocates claim many banks and credit unions have been allegedly using overdraft protection to charge unfair overdraft fees, with some customers reporting that their transactions were processed out of order. Instead of processing the transactions by date, they were processed in the order of largest to smallest, to allegedly maximize on overdraft fees.

Banks and credit unions earn billions through their overdraft fee protection programs. Customers have complained that some banks’ overdraft protection contracts are poorly worded and may not sufficiently explain the entirety of the bank’s program or the fees associated with the policy.

Other customers have complained that they were not informed they could opt out of overdraft protection, or assert that they were allegedly tricked or mislead into signing up for overdraft protection. As of August 2010, banks and credit unions are prohibited from signing consumers up for overdraft protection without their express consent.

Even with this federal policy in place, consumers are still reporting getting hit with unfair overdraft fees. Capital One customers who may have allegedly experienced these or other unfair overdraft practices may be eligible to join the ongoing class action investigation.

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