US Bank Courtesy Overdraft Protection Demystified

The insider who tipped us off about US Bank allowing customers to opt-out of courtesy overdraft protection wrote in again. He further describe how overdrafts and courtesy overdraft protection works, and why he thinks you should avoid them both and their stupid fees too…

By default, when a consumer opens a checking account (and only a checking account) they are automatically set up to have overdraft items paid to a certain limit. This limit is dynamic, it changes over time for each individual, it can be $50 or $750. This limit is how far an account can go overdrawn before the card will stop working at a merchant. For each item that goes through when there is not an available balance to cover the item, the item ‘overdrafts’ the account.

For each overdrawn item, the bank accesses a fee. US Bank has tiered fees, the first two occasions (rather than items) in a rolling twelve-month period are at $25 per item. For every occasion after that, the fee is $34 per item. These fees are called overdraft fees. US Bank tops out at a max of six overdraft fees per business day. Leave the account negative for four consecutive calendar days and a $7 daily fee gets tacked on until the account is paid off or forced closed.

These fees are scary and unfortunate. To prevent oneself from accruing these fees, one can apply for an overdraft protection account. US Bank offers three types of these accounts. One is a plain-old love-em or hate-em credit card. This will allow your account to pull the necessary funds out of your available credit limit. There is a $10 fee for each of these transfers. The second type of account is called a reserve line of credit, or reserve line. It is just what it sounds like, an unsecured line of credit similar to a credit card. It is the preferred option to a credit card as the transfer fee is only $2 and the reserve line comes with no plastic card nor any convenience checks. It exists for one purpose, and that is to be a back up. It gets people into less trouble than the credit cards. The third option is for those who do not qualify for an unsecured line of credit. It is a savings or (auxiliary) checking account. The transfer fee is $5 per item covered. This is a good deal compared to the $25 or $34 fees, but the catch with this account is that there must be money in it for it to offer protection.

Doesn’t this all sound ridiculously complicated and unnecessary? I agree, as I’m sure many of your readers do as well. That is why they should look into this opt-out option. It is not opting out of “Overdraft Protection”, but rather opting out of the bank allowing purchases to overdraw the account. In your post you got it mostly right. The only clarification that needs to be made is that what you are calling overdraft protection is actually called “Courtesy overdraft” or sometimes even “courtesy overdraft protection”. The “C” word identifies it as something that is given without asking, rather than an overdraft protection account which must be applied for in order to have.

Internal communication regarding the change:usbweekly.jpgSample letter a customer would receive after opting out of courtesy overdraft protection:bancoletter.jpg
TAKEAWAYS:

1. If you live close to your balance, keep a close eye on it and only spend money if you have it.
2. Opt-out of courtesy overdraft protection to avoid the associated fees and instead
2. Attach one of these to your checking account in case of accidental overdrafts:

  • Savings account with money in it
  • Credit card
  • Reserve line of credit

PREVIOUSLY: US Bank To Let You Opt-Out Of *Courtesy Overdraft Protection

(Photo: northernplateguy)

Comments

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  1. Hanke says:

    Wait a second…complicated and uneccessary? Depends on the person. I would certainly like to have that backup credit line, at $2 per my mistake, then $25-$34 fee. And let’s not forget, overdrafting your bank account is customer mistake 99% of the time.

    Easy, money-saving solution? Don’t overdraft your account!

  2. wolfjack says:

    While $2 per mistake is indeed preferable to $25 to $34, you need to remember that the other option if you opt out of the courtesy overdraft protection and don’t use one of the listed backups is paying the bank $15-$20 for them returning your check and then a returned check fee to person or company you wrote the check to.

  3. 7j6cei says:

    Could someone find out what the Federal Regulation is and if all banks are required to do this now? If it is a “Federal Regualtion”, then I would assume it would effect all banks, and would like to know why mine (WAMU) is unable to do this as well.

    Some investagation anyone??

  4. armour says:

    Banks suck period!!!

    I have had huge headaches in the past even when making sure things are set up properly.

    Like the time I completed a project and deposited final payment in to my business account then proceed to write 170 checks to all the suppliers venders staff ect. Before going on vacation I deposited large sum checks on a regular basis and never had a problem but they had changed policy that there would be holds for 5 business days on instruments over a cetin value. This would have not been an issue if I knew about (the notice of the change would come inserted in my next statement 2 days after I left).

    So out of those 137 checks bounced and $32.00 NSF charge each that was $4384.00 then to top it off when they tried to contact me (Remember I had just left on vacation ) they said because I didn’t return their call within the 7 business days to respond all the charges and NSF items being accrued that it would not be reversed. Plus the large amount of bounced checks they claimed I was trying to commit fraud and froze my other accounts as well.

    Just lets say after coming back and facing a long list of pissed off people and a mess like this I needed another Vacation. Took me two month a letter form a lawyer to get all the charges reversed and the additional NSF reversed that people and suppliers and venders incurred and to change my bank accounts to a new one. I moved everything from personal accounts and mortgages and business accounts.

    I now deal with a local credit union and they have been nothing but positive and more forgiving when thing do happen.

  5. INconsumer says:

    my account cannot overdraft from debit card (i can still bounce a check but i never use them). if i try to spend one penny more than whats in my account, my card just declines, and i don’t get charge any fee. like the way it should be. with as busy as my life is, i don’t have time to carry around a book and trac every little purchase. i know my balance in my head, give or take $20, and check my balance and purchases online frequently, and so far so good.

  6. 7j6cei says:

    [72.14.205.104]

    Here is the link to the Federal Reserve information reguarding OPTING OUT of overdraft!!!!

  7. Karl says:

    My credit union declines debit card transactions if it’d overdraw the account, but will pay checks even if it overdraws the account (with the usual NSF fee). The nice thing is that merchants get really cranky about returned checks, but don’t care about declined debit card transactions.

  8. Darren666 says:

    @7j6cei: Interesting, and its dated from some time ago. I can’t get either Wells Fargo or Comerica Bank to completely opt me out of overdrafts like I want. They just tell me to get ‘protection’ instead.

  9. jnews says:

    The last bank I was with, TCF bank, the fee for a dishonored NSF payment was exactly the same for a payment honored with “overdraft protection”. Make sure you check with your bank: even if you opt-out of courtesy overdraft protection, they may still stick it to you with $33 per item if you go over. If they are going to charge you, honored or dishonored, you might as well get the benefit of having the item honored. I wish TCF had their fee schedule online so I could see if they are still doing this.

  10. Florentine_Pogen says:

    My credit union (Tropical Financial CU) recently added a similar program and introduced it as if it was a life-saving convenience.

    No, a convenience would be dealing with a financial institution that isn’t continually looking for clever ways to take my money. Since that seems unlikely, I just opted out.

  11. Landru says:

    At my bank, (Bank of the West) I pay a $10.00 fee once a year for overdraft protection, which is I guess is really pretty much a credit card account. Any overdraft (from either check and atm card) pulls from that, without any extra transaction fees. The 10.00 annual fee covers it all.

    My account is set to make a minimum payment back toward the balance until I pay it off in full, which I do right away, but I don’t have to until I can afford it.

    I’ve only used it recently, when I was moving money around and had unexpected expenses. It was nice to have and it worked the way it’s supposed to.

    Years ago, when I was broke, it allowed me to really abuse it, because it’s possible to run it up just like a credit card. I don’t do that any more.

  12. mac-phisto says:

    @jnews: seconded.

    the fees don’t go away when you “opt out” of protection, folks, so you still have to balance your book.

  13. jmschn says:

    I’d be interested in finding out if all banks have to proceed with this..however, i would imagine that most don’t have this feature because it would mean losing out on free money for the banks…

  14. Dan25 says:

    @Darren666:

    just type in your PIN when you make purchases. If you dont have the funds, it will decline. Or just close your debit card (the one with the Visa logo) and just use an ATM card.

  15. Squot says:

    @Hanke: I agree. I actually have US bank, and have one of the reserve lines of credit – while it is nice and empty, it doesn’t seem to work the way that this says it works? There is no transfer fee, but it does charge interest like a credit card.

    Basically, what I personally have through US Bank is a credit card for 2750 (College card, empty. Interest rate is THROUGH THE ROOF), reserve line for 1000 (empty. Interest rate is much lower), and a checking account. Savings is through ING.

  16. furseekr says:

    @ 7J6CEI Yesterday in my statement I received a notice from WAMU entitled “Preventing overdrafts, non-sufficient funds, and fees.” You have to read it all, but you CAN opt out of ANY overdraft protection and have items returned. My reading indicates that if a check is presented that is NSF you will still be charged a NSF fee, but debit card transactions would be declined and not cause overdrafts. BUT, read on:

    I have nearly 12 years of banking experience, including WAMU and a credit union. EVERYBODY needs to understand this: When your debit card transaction is approved or declined, the processor is going off information from you bank that is a day or 2 old. This means that if on Wednesday you spent the last money in your account, purchases you attempt Thursday might be approved based on your balance from Tuesday or early Wednesday. Once a transaction is approved, there is no way to prevent it from hitting your account, and most banks will charge the overdraft fee. For the same reason, if you make a large deposit on Monday, debit card transactions that rely on that deposit might still be declined on Tuesday or Wednesday.

    Also, if you’re relying on the bank to decline your debit transactions if you don’t have the money, you need to understand that anything you preauthorize (gym membership, electric bill, whatever) will still get you an NSF fee if you have no money when it is due.

  17. Darren666 says:

    @Dan25: I used the wrong ATM card once and it overdrafted, so nope, that wouldn’t fix anything.

    I’m pretty careful with balances, but that doesn’t do diddly squat against me pulling out the wrong card from time to time.

  18. Jean-Baptiste Emanuel Zorg says:

    I don’t usually hop on the “Banks suck, join a Credit Union” bandwagon, but “courtesy” overdraft fees are one of those annoyances in life that REALLY piss me off.

    Before Bank of Satan^H^H^H^H^H America bought Fleet, my girlfriends automatic online billpay wouldn’t generate a check if there wasn’t enough in the account – it would email her instead. After BoA took over, they changed it so it would always generate the check, and would happily overdraft the account without warning. It only took one direct deposit payroll fuckup by her employer to rack up almost a dozen $32 “courtesy” overdraft fees.

    Compare to my Credit Union: They cover overdrafts using my savings account for free. The one time I did write a check for more than I had in all my accounts they not only honored it, they didn’t charge me a dime for doing it. When I expressed surprise that they would cover me for almost a thousand dollars, their response was “We know you’re good for it.”

    In conclusion, Banks suck. Join a Credit Union.

  19. GoBobbyGo says:

    Just to clarify a couple things – does this apply to the credit side of debit cards? If I use my debit Visa as a Visa, and I don’t have any money in the account, the charge would simply decline?

  20. Jean-Baptiste Emanuel Zorg says:

    @GoBobbyGo: If I use my debit Visa as a Visa, and I don’t have any money in the account, the charge would simply decline?

    Depends on the bank. BoA does NOT decline the charge – they go ahead and process it even if it will overdraw your account, regardless of whether it’s a purchase or an ATM withdrawal. Even worse, they’ll still allow the transaction even if you’re already overdrawn.

    And they may have changed it in the past 2 years, but when I complained, I was informed that it was not possible to opt out of this wonderful “courtesy” system of theirs.

  21. Eric says:

    At the bank I work at, there is a back up line of credit that we offer almost all new accounts (based on past credit). Our line of credit is free. It has an interest rate similar to a credit card, and you only pay if you use it. Most small, local banks have much better deals than the big ones like Chase, US Bank, and Bank of America. If you overdraw, it is your fault, not the banks. Each bank has the right to charge if you screw up. It is all in your disclosures (required by Regulation D). Be responsible and it is free!

  22. efefef says:

    I work at a financial institution, and the money we make off these fees is mind boggling. The craziest part is most people that use this courtesy overdraft protection are actually happy we offer it. Before we ever offered it, they’d be hit with a $25 insufficient funds fee, then $25-40 from the merchant who received the bad check. In their head, they aren’t losing out on $25 because of our fee, they are saving $25-40 because of this service. Needless to say these people aren’t too bright…

  23. glater says:

    Heh. Their “protection” is just as much of a racket as a regular overdraft fee.

    I had a case with US Bank a few years ago when I was REALLY broke – I had $15 in the account. Brace yourself, cause this is confusing. I spent $7, leaving me with $8. I put $7 in gas in my car. The first transaction hadn’t gone through, so the automatic pump’s $10 pre-authorization went through fine. Then the bank processed everything – $10 pre-auth plus $7 gas plus $7 other charge, leaving me at -$9. I had $11 in my savings account. Note that what they did was pretended like the $10 pre-auth was “real” money when they processed everything. (By the time it cleared off, it was too late and I was already more than $10 down… keep reading)

    They took $10 in “protection” fees, my remaining dollar and applied it to the -$9, leaving me at -$8… And since that didn’t cover it… Charged me $25 in insufficient funds, leaving me at a grand total of (-$33) + (-$11) = -$44 dollars. By the time I got paid, the fees were enough that I couldn’t pay rent.

    It was many days til I got paid, so I called the bank and explained what happened, and they agreed to fix it. They did NOT. When I went to speak to a live banker about it, they told me that “the customer service person offered to do that out of niceness. They didn’t have to correct *anything*. So I’m sorry, there’s nothing I can do.”

    I wish I’d been firmer, but I couldn’t afford to be changing banks and dealing with 3 week delays in direct deposit from work and all that jazz… I just got hosed, payed the money, and stayed on with them. I still carry them to this day – grudgingly. Until I find a better solution. (don’t tell me credit union, because the local ones have always been shady.)

  24. vastrightwing says:

    My mattress never charges me any fees.

  25. Charles Duffy says:

    @Eric1985: One can’t always anticipate an event which will trigger a series of overdrafts. I know a set of folks whose employer’s payment processing service retroactively withdrew their direct-deposited paychecks almost a month after they’d cleared.

  26. Anonymous says:

    Glad I found this article
    I’m a new US Bank customer.
    In my country, if I don’t have sufficient fund, ATM just simply won’t give me the money.
    But here, I was completely shocked. I got charged $19, $35, and $35 for overdrawn. I should’ve comprehend banking rules in here before making false assumption.
    I will soon opt-out coutesy overdraft protection.

    Thanks so much for this informative article!!!