Credit union overdraft fees may be used to take advantage of customers and generate profit for banks, according to consumer allegations.

Overdraft protection offers customers a safety net by allowing them to overdraft their account in exchange for a fee. These overdraft fees are charged when the bank advances funds to cover a transaction that would put a checking account in the red.

Like many banks and credit unions, Pentagon Federal Credit Union offers overdraft protection. The credit union offers its customers an option for overdraft line of credit – a credit account dedicated exclusively to preventing overdrafts.

PenFed says on its website that their overdraft line of credit options can provide “[s]afety and confidence of overdraft protection on your checking account”.

Although overdraft protection programs may be useful, the fees associated with such programs may make take advantage of consumers.

Fees make up a significant portion of banks’ and credit unions’ profits, meaning that overdraft fees and other charges must be increased in order for the financial institutions to keep making money. Although raising overdraft fees is not against the law, many overdraft fees have been raised to around $35. This is a significant amount of money, especially considering that multiple overdraft fees can be charged to a consumer – racking up a large negative balance.

Some consumers may confuse certain fees with credit union overdraft fees. The Consumer Financial Protection Bureau notes that banks cannot charge overdraft fees on one-time debit card transactions and ATM withdrawals without consent.

But for other types of transactions, “banks and credit unions are allowed to charge you overdraft fees when the bank or credit union pays a check or certain recurring electronic payments that would have overdrawn your account, even if you did not opt in.”

Nerd Wallet notes that, while federal protections may be far off, consumers can take numerous steps to avoid credit union overdraft fees, including:

• Opt out of overdraft protection: Banks and credit unions are not allowed to charge overdraft fees for ATM transactions and one-time debit card transactions if consumers have expressly opted out of their programs.
• Keep a close eye on account balances: Mobile banking is a powerful tool in avoiding overdraft fees, as transactions are less likely to make an account go negative without consumer knowledge.
• Set up alerts for low balances: Many banks and credit unions will allow consumers to set up alerts so that when a bank account falls below a certain limit, they are promptly informed.
• Quickly deposit money to cover overdraft fees: In some cases, quickly resolving the transaction may stop an overdraft fee, depending on the bank’s processing schedule. Even if an overdraft fee cannot be avoided, quickly taking care of account balances can help avoid other fees.
• Link to another account: Another type of overdraft protection uses funds from a linked account to automatically cover transactions that would otherwise overdraw the account. This service can help avoid overdrawing an account, but it may also come with certain fees.

If you were charged unfair overdraft fees by your bank or credit union, you could be eligible to participate in a FREE class action lawsuit investigation. If you qualify, an attorney will contact you to discuss the details of your potential case at no charge to you.

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