Overdraft fees have been a source of much controversy, getting plenty of attention from consumer advocates and banking regulators alike.

In one of the more controversial practices, a financial institution may alter the order in which it processes transactions in a way that makes more transactions qualify for overdraft fees.

Reordering transactions in order of largest to smallest depletes the account funds sooner, causing more of the later transactions to trigger overdraft protection and its associated overdraft fees.

In an investigation begun in 2012, the Consumer Financial Protection Bureau found wide variance among different banks and credit unions in the ways they ordered transactions.

Some banks processed debit transactions in groups, or “sub-batches,” according to the transaction type. Others simply gave all debit transactions the same processing priority, the CFPB said.

Practices like reordering transactions have made overdraft fees a big source of revenue for financial institutions. Banks recorded record high collections of overdraft fees in 2009, raking in a total of $37 billion.

More recently, a report by the Center for Responsible Lending says consumers paid almost $14 billion in overdraft fees last year.

A federal law passed in 2010 stopped banks from automatically opting customers into an overdraft protection plan for debit card transactions. Before that law, banking customers were at risk for racking up a hefty bill in overdraft fees before they were even aware they had been signed up for overdraft protection.

Continuing that practice after the new law went into effect resulted in a $7.5 million fine for one bank, following an enforcement effort by the CFPB.

Class action attorneys are now investigating whether certain financial institutions continue to engage in reordering transactions and other controversial practices regarding overdraft fees.

State Employees Credit Union Gets a Closer Look

One of the financial institutions within the investigation is State Employees Credit Union, based in Raleigh, North Carolina. Founded in 1934, this institution provides financial services for employees of North Carolina state government and public schools.

State Employees Credit Union says on its website that as of March 2012, it held just under $25 billion in assets, serving 1.7 million members through 242 branch locations.

According to the credit union’s website, members can arrange for State Employees Credit Union to cover items that would otherwise overdraw the account with funds from up to two other accounts. These linked accounts may be another checking, share, money market, loan or credit card.

The credit union makes these transfers in $50 increments – except for transfers from home equity accounts, which are made in $500 increments.

The credit union charges overdraft fees of 50 cents per transfer and waives those fees on two separate days per year. Money market and share overdraft transfers in excess of six per month incur a per-transfer fee at the same rate as the credit union’s non-sufficient funds fee, and the credit union may revoke overdraft privileges in case of repeated excess transfers.

State Employees Credit Union does not automatically provide overdraft protection by default. Unless the member opts in to receive that protection, transactions that would overdraw the account will incur a non-sufficient funds fee of $12 each.

If you or someone you know is a bank or credit union customer and has been subjected to excess or heavy overdraft fees or account closures, you could be eligible to join an overdraft fee class action lawsuit investigation.

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