Sage Datko  |  December 16, 2020

Category: Fees

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Credit union overdraft protection comes at a cost.

Many banks and credit unions provide customers with online banking, promoting the service as a convenient way to manage bank accounts and track checking account balances.

According to Forbes, online bank information may not always reflect the most current information. This can pose a number of challenges for customers who rely on online banking information when making spending decisions based on their available funds.

Forbes explains how this scenario can play out: the technology associated with online banking hasn’t caught up with the demand for the service. Glitches in online banking, or a lag in when transactions post, can lead customers to think they have more money in their account than they really do.

One way that this may occur is when banks show two balances for a customer’s account. These balances are often called the available balance and the account balance. While customers may see their account balance, and believe that this is the amount of money they are able to spend, this sum may not have factored in the amount of money a customer has already put towards other transactions that have not yet been processed.

The available balance, which is often lower than the account balance, may reflect these purchases and show the true amount available to the customer. For customers who do not understand the difference, it may be easy to accidentally check the account balance rather than the available balance.

Credit union overdraft protection comes at a cost.This can result in a customer accidentally overdrawing on their account, which triggers an overdraft fee from their financial institution. An overdraft fee is a fee charged by a financial institution when a customer does not have enough money in their account to cover a transaction, but the bank allows the transaction to go through nonetheless — for a price.

The Consumer Financial Protection Bureau (CFPB) noted that debit card transactions are the most likely to incur an overdraft fee, so customers should keep a close eye on their debit card balance.

Overdraft fees are a major source of revenue for banks. According to Forbes, economic research firm Moebs Services discovered that banks made $32.5 billion in overdraft fees in 2015 alone. Unfortunately, overdraft fees are likely not going anywhere soon, and will likely continue to take their toll on customers. 

Twenty years ago, the average overdraft fee was $20, but today, the average fee has risen to $30. Additionally, these fees are being charged much more frequently, which is part of why they have become such a large profit source for banks. Senior researcher Peter Smith at The Center for Responsible Lending noted that fifteen or twenty years ago, overdraft fees were used just as an “occasional accommodation” for customers with a low balance, but now are major sources of revenue.

Yahoo explains that the burden of these overdraft fees overwhelmingly falls on the shoulders of low-income banking customers. These same customers are then often trapped in a cycle of incurring multiple overdraft fees, or additional fees on one purchase if their account stays in the negative too long. According to Yahoo, the FDA conducted a review that found that, in 2016, 50% of rearranged overdraft fees incurred were paid by only 1.5% of all banking customers.

Credit union overdraft protection comes at a cost.The Center for Responsible Lending reports that the FDA commented on the status quo, saying “we see harm to consumers — particularly to vulnerable consumers — from the disproportionate burden of high charges and the repeated use of overdrafts.” The center also notes that based on one group of consumers, the median number of overdraft fees paid was 37 annually — a total of $1,300 in overdraft fees per year.

Nerd Wallet explains that one way customers can avoid overdraft fees is by setting an alert for when their bank account balance goes below a certain amount. Despite its flaws, online banking has actually decreased the number of overdraft fees charged.

Other ways to avoid being assessed overdraft fees include keeping track of your purchases on your own, rather than relying on your bank to do so for you. Keeping a record of your transactions, automatic payments, and deposits may help you to accurately understand how much money you have available to you at a given time.

You may also be able to link your checking account with another account so that the bank can simply transfer money between the accounts in the event that you overdraft one of them. Lastly, you may be able to opt-out of credit union overdraft protection. However, many banks and credit unions still assess an NSF fee for customers who do not have overdraft protection and have their transactions denied due to lack of funds.

To compensate for this downturn in profits from overdraft fees, as customers are increasingly able to monitor their balances and make informed choices about their spending, banks and credit unions may be turning to misleading practices to maximize the number of overdraft fees they can charge.

In some cases, financial institutions may find ways to charge multiple overdraft fees on the same transaction. They can do this by charging an initial overdraft fee, and an extended overdraft fee if the overdraft is not corrected within a certain period of time.

Unclear or vague terms in bank and credit union overdraft protection policies may also lead customers to not fully understand when they will be charged fees. Some consumers believe that final institutions are intentionally confusing customers to take advantage of them and charge excessive overdraft fees.

If you were charged overdraft fees or NSF fees by your bank or credit union that you believe are improper for any reason, the attorneys who work with Top Class Actions are ready to investigate these fees on your behalf.

Learn more by filling out the form on this page.

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This article is not legal advice. It is presented
for informational purposes only.

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