Overdrawn? It's Not Over Yet

November 2016 | Article

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.

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