What is Overdraft Protection?

Person holding credit card over card scanner attempting to purchase an item

Overdraft protection is an optional service for the customer that will protect their bank account from overdraft fees. If the customers’ bank account does not have enough funds to make the purchase, the bank will use other accounts under the same customer to cover any overdrafts that arise. Overdraft protection act as a cushion for the customers checking accounts and savings accounts. When customers sign up or opt-in for this service, the bank will set an overdraft protection fee. Depending on the bank, the account used to repay the overdraft can be a credit card or line of credit.

How Overdraft Protection Works

Without overdraft protection, if a customer overdraws their account, a hefty overdraft fee will apply. These overdraft fees can range anywhere from $30-50 depending on the financial institution. If customers decide to opt-in for overdraft protection, they have protection from overdraft fees, in exchange for an protection fee. Once opted in, they will link their checking accounts to credit cards, savings accounts, or other lines of credit. These other accounts will serve as a reserve to cover the charges if the customer overdraws their account. Once an overdraft fee occurs, the bank charges an overdraft protection fee for transferring the overdrawn funds. The bank may also charge an additional fee every month for protection or a fixed monthly fee for continuous protection.

Protection Limitations

Banks or financial institutions may offer this service, but it is not mandatory. Even if they do offer it, there may be certain types of limitations that apply depending on the institution. However, federal laws have not set a maximum amount that banks can charge for overdrafts. Although banks must disclose any fees when the account is active, according to Investopedia, many banks attempt to obscure this language in their account agreements. Lastly, banks retain the right to pay or not to pay certain overdraft transactions. This is due to the charge falling outside of certain guidelines or rules set by the bank or financial institution. When opting in for this service, it is important to review all the restrictions in the agreement first. If you haven’t opted-in, check your accounts to ensure your bank hasn’t unfairly opted you in to reap monthly payments for this service.

National Financial Service Attorneys Can Help

The Financial Services attorneys at McCune Wright Arevalo have a history of aggressive class action representation spanning over 30 years. We understand that bank fees are often just one more way large institutions unfairly profiteer off their customers, even when offering a seemingly helpful service like overdraft protection. We have recovered over a billion dollars in verdicts and settlements, across our practice areas. Our attorneys are familiar with the tactics employed by large banks and financial institutions, and we can level the playing field for our clients who have been wronged.

If you would like to contact us regarding your potential financial services case, contact McCune Wright Arevalo to schedule a free consultation or call (909) 345-8110 today!

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