Signs That a Credit Union Might be Charging Illegal Overdraft Fees

Written by™ on behalf of Tad Thomas with Thomas Law Offices.

Signs That a Credit Union Might be Charging Illegal Overdraft Fees

Written by™ on behalf of Tad Thomas, a Medical Malpractice attorney based in Illinois.


Overdraft fees occur when someone’s account is charged an amount exceeding it’s total balance; in this situation, a credit union or bank may allow the payment to go through but will charge an overdraft fee on top of the now-negative balance. While overdraft fees are typically around $35, they can be higher, and, in some cases, excessive. Despite some states pushing to make it otherwise, overdraft fees are legal to charge, providing the credit union or bank follows certain rules. However, it’s important to know what signs may indicate that a credit union is charging illegal overdraft fees.

Signs that a bank or credit union may be charging illegal overdraft fees include:

  • The account holder never enrolled in overdraft protection. Customers are required to manually opt-in to the overdraft protection program with any bank or credit union. This program is what allows a financial institution to approve a purchase exceeding the balance of the account, after which they charge the customer an overdraft fee. If a customer has not enrolled in this program and yet is charged an overdraft fee, this could be a sign that the fee was illegally issued.
  • Account balances were misrepresented. A common allegation in ongoing overdraft fee lawsuits is the claim that banks and credit unions are intentionally misrepresenting customer account balances in order to charge overdraft fees. For example, if you were charged an overdraft fee when your account was or should have been positive at the time of the transaction, this could indicate illegal overdraft practices.
  • Overdraft fees are excessive or continuous. An overdraft fee may be excessive in a few ways. If it is significantly higher than $35, or if it is charged on a continuous or repeated basis, this could indicate that the institution’s overdraft practices are illegal. For example, some banks and credit unions may charge overdraft fees on a continuous basis until an overcharged account has been replenished.
  • Reordering debit and credit charges, typically from highest to lowest. Some credit unions may reorder a customer’s transactions from highest to lowest in order to maximize the overdraft fees a customer can be charged. If you are noticing that transactions are being charged to your account out of order, this could indicate illegal overdraft practices.
  • Multiple returned items or NSF fees charged for the same transaction. Some credit unions and banks may charge a fee whenever a transaction is charged but cannot go through due to insufficient funds. In this scenario, while the institution may not charge an overdraft fee, some charge “returned item” or NSF fees. However, these fees can only be charged once. If a customer is charged with multiple fees for the same transaction, this could indicate illegal practices.
  • Charging overdraft fees for everyday purchases. Some credit unions may include a promise in their customer contracts saying that overdraft charges may only be made on recurring transactions, such as mortgage payments or monthly bills. Therefore, if a customer at one of these credit unions is charged an overdraft fee for a grocery store purchase, this may constitute a breach of contract.

A good way to prevent overdraft fees is to keep an eye on your account and set up a low-balance alert so that you receive a notification when funds are getting low. However, if you have experienced an unfair or suspected illegal overdraft charge, reach out to an overdraft fee attorney in your state to learn about your options for recovery. Litigation against unscrupulous banks and credit unions is ongoing, and you may be eligible to join an existing lawsuit or begin one of your own.


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