Non-Sufficient Funds (NSF) Bank Overdraft Fees

NSF stands for non-sufficient funds. An NSF fee is a charge that a bank makes against a customer’s account a transaction they attempt to make fails to go through, or is returned. For this reason, an NSF fee is also sometimes called a returned item fee.

The practices of charging an NSF fee may sound similar to another type of bank fee that is both quite common and has been the subject of a slew of lawsuits: overdraft fees. But a bank only charges overdraft fees when a person has already opted into an overdraft protection program, and the customer overdraws their account. Lawsuits allege that some banks use deceptive overdraft policies to maximize the amount of money they can wring out of customers.

Some consumers affected by these practices have taken to litigation, alleging that they were unfairly charged multiple NSF fees by their banks. One plaintiff filed a class action lawsuit in March 2018, alleging that Bank of America charged her and numerous other customers multiple NSF fees. In this case, the plaintiff was allegedly charged two $35 NSF fees over the course of two days after the bank resubmitted the transaction too early.

According to this class action lawsuit, Bank of America has the “contractual discretion to reject transfer attempts. There is absolutely no reason to attempt a transaction it knows will fail—except to maximize its fee revenue.”

If you were unfairly charged multiple NSF fees for a single transaction by credit unions or banks such as HSBC, Banco Popular, Valley national and many more you may be able to join a class action lawsuit investigation.

The overdraft protection law stops banks from automatically enrolling customers in overdraft coverage. The coverage allows banks to process transactions when customers have insufficient funds. Banks usually charge a fee for each of these transactions.

In 2010, the Federal Reserve declared that by default a bank must reject transactions if an account lacks sufficient funds. However, customers can choose to change the default status and opt-in to overdraft coverage, if the bank offers the service. Transactions would be approved, but the bank could charge fees.

The law only applies to transactions that are not pre-authorized, such as ATM withdrawals and debit card transactions. Pre-authorized withdrawals, such as automatic bill payments and checks, do not fall under the umbrella of the overdraft protection law and can still lead to overdraft charges.

Overdraft protection provides the customer with a valuable tool to manage their checking account. If you’re short a few dollars on your rent payment, overdraft protection ensures that you won’t have a check returned for insufficient funds, which would reflect poorly on your ability to pay. However, banks provide the service because of how they benefit from it – namely, by charging a fee. As such, customers should be sure to use the overdraft protection sparingly and only in an emergency.

The dollar amount of overdraft protection varies by account and by the bank. There are pros and cons to using overdraft protection. Often, the customer needs to request the addition of overdraft protection. If the overdraft protection is used excessively, the financial institution can remove the protection from the account.

Yes. Many transactions are processed overnight. These transactions may not be reflected in an available balance. This is why it’s important to keep a current and accurate check/transaction register and balance it to your monthly statement. A bank’s online, telephone or ATM balances are for information purposes only – they do not replace your check/transaction register.

On checking accounts, banks generally post deposits before withdrawals. However, the law does not require this. In addition, banks may establish a cutoff time for deposits made at a branch or through an ATM. Deposits made after that time may be treated as having been made on the following business day.

For example, a deposit made after the Friday afternoon cutoff time would be treated as if it were made on the following Monday. So any items with next-day availability would then be available the next day (Tuesday).

A pending debit card authorization alters the available balance in your account. If that reduced available balance is not sufficient to cover other transactions that post or clear your account that evening, then overdraft fees could be charged. As a result, the account is overdrawn and a fee is charged.

When several items come to the bank for clearing, it can choose to debit them from your account in several ways. Many national banks are opting to post the largest dollar items first instead of posting the checks in numerical order. Often the largest check represents payment for rent, mortgage, car payments or insurance premiums. If your bank adopts this policy throughout its territory, it normally will notify you via your statement. Frequent deposits can cause overdrafts that are a financial burden, especially because the fees are oftentimes hidden and unpredictable. These fees cause many consumers to leave the banking system.

Yes. Some customers who have been affected by unfair overdraft fees or deceptive overdraft practices have begun by filing a bank overdraft fees lawsuit against their banks and credit unions. If you have been subjected to unfair overdraft fees or deceptive practices at Pacific Western Bank or another financial institution, you may be able to join a bank overdraft fees lawsuit. 

After you retain counsel and provide documentation to show that you were unlawfully charged a bank overdraft fee, your lawyer will prepare a complaint and file it. After that, there’s going to be a lot of discovery that goes on regarding the bank’s procedures. At some point, a judge will determine whether or not what the bank did was lawful or unlawful practice.

An overdraft fee is charged when the account goes into the negative and Overdraft Privilege (ODP) is being used. ODP will pay items in the event your checking account does not have sufficient funds to cover them.

A non-sufficient funds (NSF) fee, or NSF item fee, is charged when your account is overdrawn, and the item is returned unpaid. You will be charged this NSF returned item fee if you don’t have funds in your account to cover the item and have not opted into ODP, you have exceeded your transfer limits or if you have exceeded the negative limit.

Banks often charge an NSF fee when a presented payment is returned due to insufficient funds. A similar fee may be assessed when honoring payments from accounts with insufficient balances. The latter scenario describes an account overdraft (OD), which is often confused or used interchangeably with NSF.

The fees many banks charge for NSF checks are a point of contention between consumers and banks. Consumer advocates allege that since fees are usually a fixed amount, a customer may, in effect, be paying extraordinarily high interest rates for relatively small deficits in their accounts.

Banks provide a few options to their customers to help them avoid the penalties associated with an insufficient funds transaction. Account holders can choose to opt out of certain overdraft policies that allow the bank to cover charges and add an NSF fee. Account holders usually also have the option to link a backup account such as a savings account. With a linked account the funds required for the transaction are taken from the linked account which can serve as a second source of funds.

When consumers write a check, they generally assume that their check will go through and that there is sufficient money in their account. However, something as simple as an unexpected bill or a miscommunication with a spouse can result in unexpected fees such as multiple returned item fees.

These fees are charged by a bank when a payment exceeds the amount in an account, or when a check is “bounced”. A consumer may also incur these fees when attempting to withdraw money from an ATM.

The highest maximum is found in Delaware where returned check fees can reach $40. In Florida, Georgia, Louisiana, and Ohio, maximums are calculated based on the amount a check is worth. Websites like WalletHub have resources available for consumers to check what the maximum returned payment fee is under their state’s laws.

According to OppLoans, the easiest way for consumers to avoid non-sufficient fund or returned payment fees is to balance their checkbook and keep an eye on account balances. This makes sure that consumers do not write checks that exceed the amount in their checking account.

You can receive an NSF fee for every transaction someone attempts to pass through your account, as many times as they try to pass it through. A person can attempt to deposit a check or make an electronic transfer multiple times. It is the number of transactions being handled that creates the NSF fees not the account being overdrawn.

If you were charged with more than one NSF return item fee for a single transaction, you may be able to file a lawsuit or join a class action lawsuit. Another issue some consumers are reporting with their banks is the assessment of multiple NSF fees, or non-sufficient funds fees, for a single transaction.  Shamis & Gentile, P.A. is investigating bank overdraft and NSF Fees charged by Credit Unions, HSBC, Banco Popular (Popular Bank), Valley national and many others.

Setting up automatic bill pay for those monthly recurring payments or bills can simplify your life, or it can cause you a headache when you are hit with an overdraft fee.

Shamis & Gentile, P.A. is investigating banks who are charging their clients for overdraft fees when a recurring payment causes your account to go into overdraft.

For example: a customer may be charged more than one overdraft fee for a single recurring transaction that fails to go through. Essentially, the bank would charge one NSF (or overdraft fee) as it should, after the transaction fails to go through initially. But then, a bank might attempt to process the recurring transaction a second time soon thereafter, already knowing the account has insufficient funds, thus being able to charge a second NSF (or overdraft fee).

An example of this would be you have $50 in your account.  Your membership at your gym tries to do its monthly payment of $65.  Your bank hits you with an NSF fee (or overdraft fee) of $35 because there isn’t enough money to cover the transaction.  THEN – the very next day your gym tries the recurring payment again, and your bank hits you with another $35 NSF fee (or overdraft fee).

Check your bank account regularly and make a note of your expenses and bank charges. Question your bank when needed if you have any queries on suspicious activity. Other ways to prevent NSF fees include:

• Setting up text or email notifications that alert you when your balances are below a certain level.
• Avoiding opting out of overdraft coverage and simply have the card declined if there are insufficient funds.
• Most banks offer to link a checking account to a savings or money market account, so that money transfers from the savings account to the checking account when there is not enough money in the checking account to cover the transaction. Opt-in for this option if possible.
• Carefully monitor the balances in the accounts as well as individual transactions