Are Bank Overdraft Fees Legal?
Bank overdraft fees can be insidious. Sometimes banks clear one big check then bounce 20 small ones, charging overdraft fees of $30 or so for each. Of course, it's up to consumers to watch their balances. Fortunately, bank regulators have made new rules to help protect them while they do so.
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Consent
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As of July 1, 2010, bank customers had the choice to opt in to a bank's overdraft protection program for ATM machines and one-time debit card transactions. Banks must explain their policies and any fees to customers and let them choose whether to be part of the program. Banks must treat all customers who choose not to be in the program the same as they treat other customers with regard to services and pricing. If a customer does not consent to be part of the overdraft protection program and a bank clears an ATM or one-time debit card transaction when there are insufficient funds, the bank cannot charge a fee.
Bank Courtesy
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Some banks have policies to protect their customers against overdraft fees. Chase Bank, for example, will sometimes allow a transaction to go through without charging a fee if the customer covers the charge within 24 hours. That is entirely at the bank's discretion. Its overdraft protection program ties to a Chase credit card where money will feed into the checking account if it becomes overdrawn. There is a $10 fee to transfer the money. It only works if there's enough money in the credit card account to cover the draft and the fee.
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Overdraft Fee Limit
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There's no limit to how much a bank can charge for an overdraft, according to the Office of the Comptroller of Currency, which regulates nationally-chartered banks. Consumers must shop for lower overdraft fees themselves. However, Woodforest Bank, a Texas thrift, recently had to pay a civil money penalty of $1 million to the U.S. Treasury and reimburse customers for what regulators considered an unfair business practice. The bank not only charged an overdraft fee, but also charged a "continuous" overdraft of $5 a day for each day the account was in the red.
More Bank Courtesy
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Banks will often deposit a large check because it represents a mortgage or car payment, then bounce smaller checks. Transactions may clear in the middle of the night before a deposit does, triggering an overdraft fee. Banks do not have to make accommodations for this. But many of the better ones will. They will waive the fee if they can see you made a deposit.
If You Didn't Sign
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If you didn't specifically choose an overdraft protection program while signing up for your bank account, or with an existing bank account after July 1, overdraft fees are illegal.
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References
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