Overdraft protection programs are touted as a great way to ensure that you are able to make transactions even when you otherwise would have hit the bottom of your account. In return for transferring the money to your account, you are charged a set overdraft protection fee. For some, this can be a useful kind of program to have in the instances they may need it.

However, for others, overdraft protection can become a huge burden. Indeed, these programs are not set up to benefit those who consistently have less money in their accounts, and therefore tend to overdraw their account regularly, incurring a new overdraft protection fee every time.

In many cases, consumers may not even be aware of exactly how these overdraft programs—and the associated overdraft protection fee—actually work. While consumers have to opt into these programs, many are left confused, according to a recent study from Pew Charitable Trusts.

“Overdraft programs are often marketed as a service that banks provide to cover occasional budgeting errors,” the study says. But these programs are often misunderstood by consumers, which “can have a major impact on how much consumers spend on overdrafts,” according to Pew.

Many don’t understand that there’s another option besides paying an overdraft fee. Indeed, “most consumers don’t know they can have transactions declined at no cost—that’s a multi-billion-dollar problem,” according to Pew Charitable Trust Officer Thaddeus King.

Unfortunately, the overdraft protection fee problem is an issue for those who can least afford it. Last year, 74 percent of those who paid an overdraft protection fee had trouble paying their monthly bills.

Deceptive Overdraft Practices

Moreover, some banks and credit unions may use deceptive practices, such as reordering transactions so that an overdraft protection fee is charged more often. Customers may find themselves facing huge and unexpected overdraft protection fee charges.

Some banks may rearrange transactions to collect more in fees, deliberately skewing the order of customers’ transactions to incur the greatest number of fees possible. When a bank rearranges transactions from highest to lowest rather than from first to last, each transaction is increasingly more likely to overdraw an account. A large fee processed earlier can tip a customer to overdraw their account earlier, with even more transactions left to be charged an overdraft fee. These bank overdraft fees then compound, and customers are left with a much heftier sum to pay.

Overdraft programs are a common feature of banks and credit unions, and the amount of money bank overdraft fees rake in each year is rapidly increasing. In 2017 alone, consumers paid a whopping $34.3 billion in bank overdraft fees. This is the highest that bank overdraft fees have been since the end of the recession in 2009—up from $33.3 billion in 2016.

Filing an Overdraft Lawsuit

A number of financial institutions are being investigated for the use of unfair or deceptive overdraft practices, including HSBC Bank, Capital One, UMB Bank, Boeing Employees Credit Union (BECU), America First Credit Union, and several others.

If you were also affected by deceptive or unfair bank overdraft fees at these or other financial institutions, you may be able to file a class action lawsuit to pursue your own compensation.

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