For consumers, unexpected fees are an aggravating and potentially harmful part of banking. For financial institutions, they are an essential source of revenue. The Consumer Financial Protection Bureau estimates banks made over $15 billion in overdraft and non-sufficient fund (NSF) fees in 2019, which has only increased in the preceding years.
Fortunately, the tide began to turn against predatory bank practices in 2020. Ally Bank and several credit unions decided to stop charging overdraft and NSF fees in response to the hardships brought on by the pandemic. Capital One, the sixth-largest bank in the United States, also cancelled NSF fees in 2020. Despite recent news of several banks ditching overdrafts altogether, three of the biggest banks in the US have no intention of slowing down. JP Morgan Chase, Wells Fargo, and Bank of America generated 40% of all fees.
About Overdraft Fees
An overdraft fee is a charge issued by a banking institution when a customer attempts to withdraw an amount that exceeds their checking or savings balance. The transaction goes through, leaving the customer with a negative balance. Because the bank has essentially paid for the transaction, it will charge a fee averaging $35 in addition to the amount owed.
Federal regulation passed in 2010 requires banks to ask consumers for consent before enrolling them in an overdraft program. If customers do not “opt-in,” they cannot be charged a fee for exceeding the account’s balance. However, the law only applies to ATM and debit transactions—recurring and pre-authorized payments are exempt.
Similarly, an NSF fee occurs when a customer does not have overdraft protection. The vendor declines the transaction, and the bank charges a fee for attempting the transaction in the first place.
How Overdraft Fees Break the Law
Financial institutions do several things to extract the most profit from their customers. Recently, the following trends have been on the rise.
Reordering
Federal law allows banks to charge one overdraft per transaction. By reordering the transactions that put customers over their limit, they can collect several fees simultaneously.
For example, imagine you have $50 in your bank account. If you make five small purchases that leave you with a zero balance, you make one larger purchase at the end of the day. You may be under the impression that you will only face one charge for that day. However, the bank might reorder those transactions. It can tack on six fees in total by placing the largest charge first and then the smaller charges.
Misrepresenting Charges
A recent class action against NBT Bank alleges that the institution inappropriately assessed overdraft fees on charges that did not put the customer’s balance at a negative level.
If you are one of the millions of Americans who use a debit card frequently, you may be familiar with the difference between an “available” balance and a “running” balance. When a customer uses a debit card, the bank adjusts the customer’s balance in real time to reflect the transactions precisely at that moment. The bank will sequester the funds needed for the transaction while the charge processes (usually a few days). The running balance shows how much the customer still has available until the available balance catches up.
The suit against NBT states that customers were misled by the bank’s practice surrounding running and available balances. The bank held those sequestered funds off-limits for other transactions, but still charged overdraft fees. The plaintiffs say they were charged overdraft fees on those sequestered charges because they went into a negative balance while they were still pending. This means they were charged double the overdraft fees- once for the initial negative balance and once for the charges supposedly set aside before the charge was completed. The class action calls this practice “deceptive, unfair, and unconscionable,” structured to maximize NBT’s profits.
Combined Fees
A 2021 suit against TD Bank sheds light on another sneaky way financial institutions use overdraft and NSF fees to gouge consumers. A Florida customer alleges the bank charged $70 in fees to process a single $100 transaction. The withdrawal, the plaintiff says, was an accidental overdraft for a one-time transfer to another bank.
TD charged an NSF fee of $35 (as per the contract) when the overdraft occurred. However, the bank continued to attempt the transaction and charged an overdraft fee for another $35. An overdraft fee pays for the transaction for the customer, thus negating the need to rerun a failed transaction. But TD first charged an NSF fee, and the transaction failed. Then, the bank charged an overdraft fee when processing the claim a second time.
The customer contract explicitly states that a fee will be assessed per item. Still, the class action has evidence that the institution regularly charges two or more fees for the same item.
Credit Unions and NSF Fees
Traditional banks are not the only type of financial institution that generates enormous profit from NSF fees. The nation’s largest credit union, Navy Federal Credit Union, collected over $335 million in overdraft fees in 2024. An order from the Consumer Financial Protection Bureau ordered NFCU to refund $80 million in what were determined to be unlawfully levied fees, but the order was rescinded in 2025.
Avoiding Fees
Banks advise consumers to do the following to avoid paying costly payments:
- Use online banking
- Track expenses on paper or online tools
- Set up balance alerts
- Speak to the bank about alternatives to overdraft fees
Unfortunately, these tips don’t defend consumers who are more likely to be victimized by unfair banking practices. It is well documented that lower-income banking customers are more frequently on the hook for fees. In fact, 9% of account holders pay 80% of all fees. That subset of customers had, on average $350 or less in their accounts. These unfair fees can start a cycle of debt that is difficult to break out of.
Representation for Illegal Overdraft Fees
Maginnis Howard is proud to fight against financial institutions that exploit customers. If you have been the victim of unwarranted overdraft or NSF fees, please contact our firm’s unauthorized transaction attorneys. Our results speak for themselves, and our clients are our number one priority. Call us at (919) 526-0450 or email us through our contact page. We represent clients in consumer protection matters across the Carolinas from our Raleigh, Charlotte, and Fayetteville offices.
