Despite their more consumer-friendly image, customers have accused some credit unions of being just as guilty as big banks in charging high overdraft fees. In reality, experts warn that any financial institution, large or small, could be charging overdraft fees without the customer’s knowledge. Experts recommend that customers at credit unions and smaller banks closely monitor their accounts, and should ask their tellers how much they are being charged in overdraft fees.

An overdraft fee is the amount that a financial institution charges customers when the customer’s account doesn’t have enough to pay for a transaction, but the bank transfers money from a different account to cover the transaction. This transfer can be linked from a customer’s money market or checking account, or it could be a loan from the financial institution. Regardless of the source, the bank or credit union will impose a fee to safely transfer the funds. Overdraft fees could also be called insufficient fund fees, courtesy fees, or other similar titles.

Much of the controversy surrounding overdraft fees stems from a practice that some credit unions and other financial institutions engage in, which is reordering transactions from largest to smallest, rather than processing them in chronological order. This pushes customers into needing overdraft protection at an early stage, which will cause overdraft fees to pile up. While it is not illegal for banks, credit unions, or other financial institutions to charge overdraft fees, it is illegal for these parties to charge improper fees that would breach a contract with the customer.

To help protect against unfair or illegal overdraft fees, the Consumer Financial Protection Bureau (CFPB) has made it illegal for any financial institution to charge overdraft fees for one-time debit card transactions, unless the consumer has not opted for their bank or credit union’s overdraft protection. This means that unless the consumer has signed up for overdraft protection, the bank cannot charge the customer an overdraft fee. This policy was enacted on Aug. 15, 2010, and has reportedly helped customers from big banks and credit unions alike.

Overview of Credit Union Overdraft Fee Allegations

Credit union customers have been particularly upset about the overdraft fees, because many consumers opt to open accounts at credit unions such as Patelco Credit Union, United Nations Federal Credit Union, Wings Financial Credit Union, Ent Federal Credit Union, and Hudson Valley Federal Credit Union in order to avoid large fees often imposed by traditional banks.

Credit unions have been accused of many of the same practices as banks, however, such as raising fees on ATM withdrawals, charging overdraft fees, and imposing other fees on customers at an even faster rate than banks. Experts speculate that this alleged behavior may be due to the lack of new credit union customers over the past few years.

Consumers who believe that they have been charged unfair overdraft fees should consider speaking to an attorney about the possibility of filing an overdraft fee lawsuit.

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