Lawyers are investigating large banks’ practice of charging overdraft protection fees.

Overdraft protection fees are fees that banks charge their customer when they make a purchase that exceeds the amount of money the customer has in their account. These fees are dubbed overdraft protection fees because they allow the consumer to make the purchase even though they have insufficient funds, as opposed to just having their debit card declined.

However, banks who allow consumers to overdraft their account penalize consumers with hefty fees called overdraft protection fees.

Federal law changes that were implemented in 2010 dictate that banks may not charge overdraft fees to consumers unless the consumer knowingly agrees in writing to participate in overdraft protection programs. This means that consumers have to actively “opt in” to overdraft protection programs that allow them to use their cards despite having a negative balance.

However, bank customers claim that major banks are applying overdraft protection fees to consumers who did not actively opt in to an overdraft protection program.

Overdraft Protection as Profit

According to a 2013 report by the Consumer Financial Protection Bureau (CFPB), 61 percent of profits made by banks from consumers come from overdraft protection fees. Many consumers allege that banks are strategically using strategies and loopholes to get around the laws banning default overdraft protection. Other consumers claim that banks are simply violating the laws outright.

The average overdraft fee is $35 per overdraft. These fees can add up quickly, because even if an account is overdraft by only $1, the consumer will be charged a fee. Because a card is not declined when a bank applies overdraft protection fees, a consumer may not know that their account is being overdrawn. In many cases, this leads them to continue to make purchases on an account that is overdrawn, racking up fees every time they use the card.

Class action lawsuits have been filed claiming that banks use a number of tactics to get around overdraft protection fee laws and to get as much out of a consumer in fees as possible. Consumers claim that these practices are exploitive and deceitful.

Maximizing Fees

In some cases, consumers have accused banks of reordering transactions to maximize fees incurred. For example, if a person has $100 in their account and makes three purchases in a day of $10, $20, and $110, in that order, they, if they are enrolled in an overdraft fee protection program, should be charged an overdraft fee on the last charge as it is that charge that overdraws the account. However, consumers argue that in a case like this, many banks reorder transactions so that the $110 purchase is charged first, then the other two are charged. In this scenario, the consumers would be charged overdraft fees on all three purchases.

Other consumers claim that some banks hold purchases and do not charge them to a consumer’s account until an account is in overdraft, thus maximizing the fees they can collect. Still others claim that banks intentionally apply deposits to consumers’ accounts on an irregular basis so consumers cannot anticipate when they will have funds in their account, and thus overdraft their account.

Many consumers have taken action against this practice by filing class action lawsuits against banks who charge overdraft protection fees without consumers’ consent. Through this legal action, consumers are able to recuperate some money that they lost due to unlawful fees, collect additional damages, and put pressure on banks to follow the law.

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