Bank Overdraft Agreement

Overdraft protection is a financial service offered by banking institutions, primarily in the United States. The overdraft or courtesy program protection pays for items that pay into a client`s account if there is not enough funds to cover the amount of the payment. Overdraft protection can cover ATM withdrawals, debit card purchases, wire transfers and cheques. In the case of unauthorized items such as cheques or ACH withdrawals, overdraft protection allows you to pay for these items instead of being returned or jumping without pay. However, ATM withdrawals and purchases made with a debit or cheque card are considered pre-authorized and must be paid by the bank when they are presented, even if this results in an overdraft. A recent product, proposed by some banks, is called “bounce protection.” If the existing authorized overdraft is not thought to be sufficient, then the account holder should speak to the bank and request a temporary overdraft limit. If, as a general rule, they have managed their account responsibly, the bank will generally request it. If a transaction exceeds the previously agreed overdraft limit, the bank can either refuse the transaction or accept it as an informal request for an increase, formerly often referred to as unauthorized overdraft credit. Fees and interest rates for informal increases often exceed the mandatory fee for a formal application. There is also usually a transaction fee denied, often subject to monthly caps. Typically, the bank sends a letter informing the customer of the charge and requesting that the account be operated within its limits from that date, or inform the customer of its new border. A BBC whistleblower on the practice revealed that the actual cost to the bank was less than two pounds.

[Citation required] In July 2010, the Federal Reserve passed regulations (revisions to Regulation E) prohibiting overdraft fees from debit cards and one-time ATMs, unless the bank`s customer opted for overdraft protection. Consumers who opt for overdraft programs pay more than seven times as much overdraft and NSF fees, or an average of nearly $260 per year, based on a recent report by the U.S. Consumer Financial Protection Bureau. [18] Moebs Services studies published in February 2011 showed that up to 90% of customers opted for overdraft protection, leading to the prediction that U.S. banks would record profits on overdraft fees. [19] A contentious issue regarding overdraft fees is the order in which a bank reserves transactions on a customer`s account. Processing levies from the largest to the smallest will maximize the number (but not the value) of oversubscribed levies on a debitor account. This can occur when the account holder makes a number of small withdrawals for which there are sufficient funds in the account at the time of purchase. Subsequently, the account holder performs a heavy charge that exceeds the account (either accidentally or intentionally). If all items that deposit the same day in the account and the bank first process the largest transaction, several overdrafts may occur.