Much of the news surrounding improper overdraft fees concerns reordering of transactions - when financial institutions reorder transactions from largest to smallest rather than in chronological order, pushing customers into overdraft protection earlier and racking up overdraft fees.
In truth, however, concerns about overdraft fees are more general. Banks and credit unions can, at most, only charge overdraft fees in the manner they lay out in their contracts. A large overdraft fee might be perfectly legal if the financial institution included it in the contract. On the other hand, a tiny fee might be improper, if it was not included in the contract.
Consumers might also not be aware that since August 15, 2010, Regulation E from the Consumer Financial Protection Bureau (CFPB) made it illegal for financial institutions to charge overdraft fees for one-time debit card transactions (meaning transactions that are not recurring, such as an automatic bill payment) if the consumer had not opted in to the overdraft protection. In other words, if a consumer makes a purchase at a grocery store and goes into overdraft, an overdraft fee can only be charged if the customer agreed to overdraft protection.
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“Not all overdraft charges are improper,” says Taras Kick, of The Kick Law Firm, APC. “Some are proper. But some overdraft fees are improperly charged. If someone has overdraft fees from a credit union or small bank, they should look into it, because they may be right. It’s worth investigating.”
Lawsuits have been filed against a number of financial institutions, alleging customers were wrongly charged overdraft fees due to transaction reordering. Some financial institutions have also faced fines from regulators for allegedly charging illegal overdraft fees.