Unauthorized Overdraft Fees

Overdraft fees are among the most significant sources of bank revenue from low-income consumers in the United States. Research has consistently shown that overdraft fee revenue is concentrated among a small proportion of account holders — disproportionately younger, lower-income, and minority consumers — who repeatedly overdraft by small amounts and pay $35 or more per transaction in fees. A $5 coffee that triggers a $35 overdraft fee represents a 700% fee on the amount involved. Over the course of a year, a single account holder may pay hundreds of dollars in overdraft fees. Before 2010, banks automatically enrolled customers in overdraft coverage programs that allowed ATM and debit card transactions to go through even when account balances were insufficient — and then charged a per-item fee for the service. Many customers did not know they were enrolled, did not realize their transactions were being covered rather than declined, and received large fee bills before they understood what happened. The Federal Reserve amended Regulation E specifically to address this abuse: banks must now obtain affirmative opt-in consent before enrolling customers in overdraft coverage for ATM and one-time debit card transactions. The bank's claim that overdraft protection is 'automatic' and that the fee is 'in your account agreement' conflates disclosure with consent. The account agreement may describe the fee — but under Regulation E, the description of a fee program in a contract is not the same as an affirmative opt-in election. You must be given a clear notice and opportunity to affirmatively choose to opt in, not simply disclosed as part of a lengthy agreement. Note: State law may provide additional protections beyond the federal baseline described here.