A recent report by the Consumer Financial Protection Bureau (CFPB) has shed some light on how consumers feel about overdraft programs in place at banks and credit unions. One such finding was that customers are not well informed on how to avoid overdraft fees.

What Are Overdraft Programs?

Overdraft programs assist consumers when they need to make payments or withdraw money from their checking account but they do not have enough funds available in their account to do so. Using more money than you have in a checking account is known as an overdraft.

If a consumer makes a purchase or withdraws money from an account that results in an overdraft, the bank or credit union can pay the transaction for the consumer and essentially loan the consumer the money for the transaction. In return, and overdraft fee for this short-term loan is typically assessed and is passed on to the customer.

Overdraft programs have a variety of policies that dictate how they assess overdraft fees on customer accounts. Very few banks and credit unions charge no fee for overdraft protection services. Most financial institutions charge a fee that ranges between $10 and $38, with the average national fee being about $28.

Some financial institutions have a cap on the number of overdraft fees that can be charged in a single day, while others can charge unlimited overdraft fees for transactions that exceed the amount of money in a customer’s account.

Results of the CFPB Report

The CFPB polled 88 people who had recently been charged overdraft fees for making a purchase or withdrawing money that caused their account to go into the negative and several that had their transactions declined because there was not enough money in their checking account to cover the purchase or withdrawal.

Customers who were polled indicated that there were both benefits and drawbacks to overdraft protection programs. The main concern raised by the majority of respondents was over the high cost of overdraft fees. Additionally, many indicated that they were not clear about how overdraft policies worked and why they may have been assessed different fees for different overdraft transactions.

Other customers stated that they did not understand how banks credited deposits to their accounts, and said that they believed they had enough money in the account to cover the transactions, but later found that the deposits had not cleared in time, causing them to be charged an overdraft fee.

Can Consumers Avoid Overdraft Fees?

The Consumer Financial Protection Bureau stated that consumers are able to avoid overdraft fees in many instances. The CFPB stated that consumers can opt out of overdraft protection programs so they are can avoid overdraft fees.

If customers don’t have enough money in their account to cover the transaction, the transaction will be denied, and no fee will be assessed.

Additionally, customers can link their checking account to a savings account, money market account or other account in order to avoid overdraft fees. In this way, money can be transferred from the secondary account transferred into the checking account to cover the transaction that would have made the checking account balance fall into the negative.

However, it appears that some financial institutions still charge for this service of transferring money on the customer’s behalf.

Have You Been Charged Inappropriate Overdraft Fees?

Some consumers have noted that they have been charged inappropriate overdraft fees. One way they say this is happening is that banks and credit unions are processing transactions out of order, thus maximizing the number of overdrafts a customer racks up. This, in turn, puts more money in the pockets of the financial institutions as they are able to collect more fees from customers.

Two financial institutions that have been accused of possibly engaging in unfair overdraft practices are Capital One and HSBC. If you have been charged inappropriate overdraft fees from Capital One or HSBC, you may qualify for a free case evaluation to see if you may have a legal claim.

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