Legal Issues Involving Overdraft Charges on Checking Accounts

There are many legal issues associated with overdrawing a checking account that consumers should take into consideration. Customers often take advantage of overdraft fee protection. This coverage protects them from fees associated with overdrawing their account. Understanding the laws concerning overdraft charges can protect you from excessive fees.

What is Overdraft Protection?

Overdraft protection is a financial institution's promise to cover charges if a customer overdraws their account. There is usually a monthly fee for this coverage, and the institution specifies the maximum amount it will cover. Customers must tell the bank or financial institution if they wish to take advantage of overdraft protection.

Pending Deposits

Always check your account balances before using an ATM or even writing a check. You may have deposited money recently, but it may not clear right away. Your account can be overdrawn when you think you still have enough money to cover the payment or withdrawal. Most deposits are processed overnight, but it is important to be sure the money is actually available in the account.

Different Bank Procedures

Your bank has two options if you write a check that exceeds the balance in your account. It can either cash the check or return it to you. Banks usually charge fees both to both parties for returned checks. Ask your bank what its policy is for handling a check in an overdraft. The bank can also charge you a fee if it cashes a check and there are insufficient funds.

Notification of Bounced Check

Customers sometimes feel that they should be notified if a check bounces. That way, they know not to write more bad checks. However, the bank is under no obligation to do so. You are responsible for any bounced checks and it is your responsibility to check your balance regularly.

Working with Joint Accounts

All members of a joint account will be liable for any fees in the event of an overdraft, even if only one person was responsible. Also, only one member of the account needs to opt in to overdraft protection to receive coverage.