Flagstar Bank Overdraft Fees: Taking a Closer Look

To provide an alternative to having transactions rejected, many financial institutions, like Flagstar Bank, are offering their customers some form of overdraft protection.

Overdraft protection plans generally provide payment for transactions that would otherwise be denied for a lack of sufficient funds in the account – a situation traditionally known as a “bounced check.”

From the consumer’s perspective, the benefit of overdraft protection is that the transaction still gets paid, letting the consumer avoid a ding on their credit and any NSF fees assessed by the business they’re trying to pay.

Banks that provide overdraft protection also generally charge a per-transaction fee for that coverage, however, these fees are often comparable to the fees customers must pay for NSF transactions.

What’s more, some banks sign up new customers for overdraft protection by default. Even if notice requirements are followed, customers may not be fully aware of what their options are regarding acceptance or opting out of overdraft protection.

Overdraft Protection at Flagstar Bank

Flagstar Bank, for example, is a smaller regional bank based in Troy, Michigan and serves communities across that state. Flagstar Bank offers services for both personal and business banking. According to its website, Flagstar Bank currently holds $13.7 billion in assets.

Flagstar Bank offers a few different options for overdraft protection. One of these options is called Bounce Protection. In case of an overdraft, Bounce Protection will pay the overdraft and assess the banking customer an overdraft fee of $36.

Flagstar Bank characterizes Bounce Protection as its default overdraft service. It does not automatically provide coverage for ATM and one-time debit overdrafts, though; customers can opt in for that particular protection.

As alternatives to Bounce Protection, Flagstar Bank also offers an Overdraft Line of Credit at a cost of $10 per transaction, plus interest which begins to accrue immediately after the transaction. Customers can also arrange for an automatic transfer from a linked account to cover the overdraft, also at a cost of $10 per transaction but with no charge for interest.

Overdraft Fees

Overdraft fees are a significant source of revenue for banks. In reports filed with the Federal Financial Institutions Examination Council, banks reported a total of $11.6 billion in revenue from overdraft fees and NSF fees combined in 2015. That figure represents 8 percent of the reporting banks’ total net income and 5.5 percent of the reporting banks pre-tax profits.

After studying the effects of overdraft fees for years, the Consumer Finance Protection Bureau is considering creating rules to govern the way banks levy these charges. But banks are aware of that potential regulation and are pushing back hard against the agency.

Consumer advocate groups have called certain overdraft fees practices by banks “unfair, deceptive and abusive.” Concerns have been raised about such practices as reordering transactions in a way that maximizes the number of transactions that trigger overdraft fees.

The CFPB is also considering whether to improve the requirements that banks disclose the terms of their overdraft protection, making it clearer for consumers when they are able to opt in or opt out of that protection.

Banks are ready to fight the proposed regulation, however. Some of the stronger opposition may come from smaller regional banks like Flagstar Bank, banks for whom the revenue from overdraft fees can be crucial to survival.

Join a Free Bank Overdraft Class Action Lawsuit Investigation

If you have incurred overdraft fees in the last three years from any of the following banks, you may be eligible to participate in a class action lawsuit to recover some or all of your overdraft fees:

• Ally Financial Inc.
• Bank of Hawaii
• Bank of the West
• Capital One Financial Corp.
• Commerce Bank
• Fifth Third Bancorp
• HSBC North America Holdings Inc.
• BOKF NA (includes Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, and Colorado State Bank and Trust).

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