What Are the Consequences of Overdrafting on Your Bank Account?
When you overdraw your bank account you typically have to pay penalty fees and face the risk that your bank may refuse to honor checks presented for payment against your account. In the longer term, overdrafts can appear on consumer credit reports, and some banks will refuse to open accounts for people who have frequently overdrawn accounts in the past.
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Fees
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Your bank charges a fee when your account balance goes negative. If any items are presented for payment after your account balance falls below zero, your bank can charge additional fees for every one of them. Overdraft fees are not capped by federal or state laws, and often exceed $30 per item. Your bank can also charge an extended overdraft fee if your account balance remains negative for a week.
Bounced Checks
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When items are presented for payment against an account with a negative balance, the bank can choose to honor or reject them. You pay a fee to the bank either way, but if the bank rejects these items then you may paying penalties fees to those to whom you wrote the checks. Laws in many states enable people to press civil or criminal charges against people who write checks that bounce, although you normally have at least 30 days to settle the debt.
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Account Abuse
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Banks make regular reports about account holders to a consumer reporting agency called ChexSystems. ChexSystems records data ranging from how often you order new checks to how many merchants have reported you for writing checks that bounce. ChexSystems also keeps records about people who commit "account abuse." This term normally applies to people who frequently overdraw their accounts, write bad checks and abandon overdrawn accounts. A bank can refuse to open a new account for you based on negative information on a ChexSystems report.
Charge off
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If you do not make a deposit to bring your negative account balance back to positive, your bank can charge off your account. This means the bank closes the account and transfers it to its debt-collections unit. This normally occurs if your account balance remains negative for more than 60 days. If your bank charges off your account, credit bureaus are notified and the charge-off stays on your credit report for up to seven years.
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