While overdraft protection programs are now a regular component of most bank and credit union accounts all over the country, some banks may use deceptive or unfair practices to charge customers extra using their overdraft programs. A number of financial institutions’ overdraft policies are under investigation, including HSBC overdraft charges.

Overdraft Protection Program Basics

Overdraft protection is often advertised to bank customers as a feature meant to add padding to their checking accounts. With overdraft protection in place, customers can have money loaned or transferred to cover their transactions when they would otherwise have hit the bottom.

In exchange for this service, each time a customer with overdraft protection overdraws their account, they are typically charged a set overdraft fee.

Overdraft fees can be substantial: the average overdraft charge is around $31, and it is not unusual for banks to charge more. The hefty fee means that customers generally don’t want to make it a regular occurrence. However, in some cases, incurring extra charges can be difficult to avoid—especially when banks use unfair or deceptive practices to make this more likely.

One issue many bank customers run into with overdraft programs is the fact that overdraft fees may compound. It is not just the first transaction that pushes a person’s account over their limit that incurs a fee, but every subsequent transaction until more money is added to the account. If a person unknowingly overdraws their account and continues to do so for several transactions, they can incur a substantial amount of fees. For customers who are routinely near the bottom of their accounts, this can present a serious problem, and these fees may be much more than they thought would come from signing up for an overdraft program.

HSBC Overdraft Charges

Several banks and credit unions are currently under investigation for their allegedly deceptive overdraft protection policies, and more still may be using these practices. Just last year, HSBC Bank settled a massive class action regarding its overdraft protection program for a whopping $32 million. The lawsuit was filed over alleged practice of deliberately reordering transactions to increase the amount customers would be forced to pay in HSBC overdraft charges.

Deceptive Overdraft Practices

Overdraft protection programs are not solely for the benefit of customers. These programs bring in billions to banks every year in fees. Some financial institutions may be capitalizing on this source of income by using deceptive practices to ensure their programs are as lucrative as they can be.

There are a few methods that may be used to enact unfair overdraft charges or such fees from other banks. For instance, when customers sign up for an account, they may not be told all the details of the program or its associated fees. Others may not be informed that they have the ability to opt out of the overdraft protection program.

One major method of collecting extra overdraft fees from customers is re-ordering transactions. Banks can deliberately skew the order of customers’ transactions to incur the most fees possible.

Some banks may purposely re-order a customer’s transactions from highest to lowest rather than from first to last, which makes each transaction increasingly more likely to overdraw an account. If a large fee is processed earlier, this can cause a customer to overdraw their account earlier. This means that more transactions are left to be charged, incurring extra overdraft fees. Customers may be left with a much heftier charge than they ever expected.

The allegedly excessive HSBC overdraft charges were caused by a somewhat subtle transaction posting order practice that can have a dramatic effect. HSBC has not re-ordered transactions since reaching the overdraft fees class action settlement last year.

Filing a Lawsuit Over Deceptive Overdraft Practices

Some customers who have been affected by deceptive overdraft practices have begun filing lawsuits against their banks and credit unions, including HSBC Bank. If you have been subjected to unfair HSBC overdraft charges or deceptive practices at another financial institution, you may be able to join a class action overdraft fees investigation.

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