Is It Legal to Charge Overdraft Fees When You Are Already Overdrawn?
Federal laws do not limit the number of overdraft fees a bank can assess on an overdrawn account and banks can continue to assess fees to an already overdrawn account. Generally, banks charge overdraft fees for items that push a balance into the negative and non-sufficient-funds fees for other items that attempt to clear an already overdrawn account.
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Overdraft Fees
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Banks charge overdraft fees on items that cause an account to go into the negative and these fees typically cost between $25 and $38. Many banks charge a second fee, known as an extended overdraft fee if an account balance remains in the negative for a week or more. Many banks assess two or more extended overdraft fees before finally freezing and closing an account if it remains negative for between 30 and 60 days.
Non-Sufficient-Funds Fee
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When another bank or a vendor presents a check or electronic item for payment against an already overdrawn account, the bank receiving the item can elect to honor the item or return it unpaid. If the banks pays the item the negative balance increases by the amount of the charge and an overdraft fee. If the bank does not pay the item, the negative balances increases due to the non-sufficient-funds fee assessed against the unpaid item.
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Opt-In
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Customers with overdrawn accounts can avoid some overdraft and non-sufficient-funds or NSF fees by opting out of bank overdraft handling procedures. If a customer opts-out, then the bank declines all one-time debit card transactions that would cause an account to go into the negative. Additionally, the bank cannot assess any NSF fees on the declined charges. People who opt-in enable the bank to decide whether to approve charges that could overdraw their account, but also enable the bank to charge them NSF fees on these items.
Other Fees
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In addition to overdraft and NSF fees, customers with overdrawn accounts often have to pay late fees and penalties to creditors, landlords and other vendors because checks they wrote to these companies were returned unpaid due to the overdrawn account. Some banks refund third party fees that are due to a bank error, but generally banks neither refund third party fees nor bank overdraft fees. Customers can establish overdraft protection in the form of a credit line or savings account to eliminate these fees.
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