Insights: Article

Overdrawn? It's Not Over Yet

By   Linda Albrecht

November 02, 2016

Just when you thought there was nothing else that could possibly be wrong with your overdraft practices—think again. In recent months, there has been heightened emphasis on banks’ overdraft practices, namely continuous overdraft charges and how they may be interpreted to contradict terms in your deposit account agreement. The particular phrase that is cause for concern is in the “Liability” section of the account agreement and indicates “Each of you also agrees to be jointly and severally liable for any account shortage resulting from charges or overdrafts, whether caused by you or another with access to this account. This liability is due immediately, and can be deducted directly from the account balance whenever sufficient funds are available.”

A word of caution, if a customer’s account is overdrawn as a result of a return item fee or other account service charge, the imposition of a continuous overdraft fee should not be charged unless it has been made clear to customers in account disclosures and agreements that bank fees may cause the account to be overdrawn and subsequent fees may result.

Protect Yourself
Ways to avoid potential customer reimbursement include:

  • Emphasize on fee schedules and overdraft notices that continuous overdraft fees will be assessed, even if the overdraft was caused by a service charge or other fee being assessed to the account.
  • Do not charge a continuous overdraft fee if the initial overdraft was a result of a bank fee.
  • Discontinue charging a continuous overdraft fee all together.
  • Set account parameters so account fees will not cause the account to be overdrawn (i.e. $10 service charge assessed when account balance is $5, causing a – $5 balance).

 

These are just some suggested solutions. There may be others depending on your actual practices or systems capabilities. Review your disclosures and account agreements closely to make sure they clearly define how and when fees will be assessed and make sure all documents agree.

Latest Insights

May 25, 2018
Article
While revenue recognition implementation guidance under FASB is still being finalized, a significant portion of health care industry information is now available.
May 25, 2018
Article
Did your U.S. business have direct or indirect ownership or control by a foreign person or enterprise at any time during 2017? If yes, you need to read on.
May 24, 2018
Article
Do you owe tax in Alabama, Connecticut, Indiana or Texas? If so, you should consider participating in an available amnesty program.
May 21, 2018
Firm News
Today, accounting firm Brad Rhodes and Associates of Greenwood Village, Colo.
May 21, 2018
Article
The mission of the organization may sing to your heart strings, but sometimes the nicest people who appear to live for the mission create unimaginable havoc, and you can’t turn a blind eye.
May 21, 2018
Article
Whether it be accidentally or on purpose we have all deleted a file.