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Lucy, Esq.
Lucy, Esq., Lawyer
Category: Consumer Protection Law
Satisfied Customers: 27621
Experience:  Lawyer
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This is about overdraft fees: I am a sole proprietor and was

Customer Question

This is about overdraft fees: I am a sole proprietor and was told by my bank that I had to open a business account. They did not inform me that business accounts do not allow account holders to opt out of overdraft protection. Whether or not the bank decides to decline a charge or go into overdraft is decided case-by-case, at the bank's discretion. I had 12 small charges before Christmas (last-minute gifts) that went into overdraft. Rather than decline the charges, the bank chose to honor them, putting me into overdraft. The following day, they decided to reverse each charge, charging me $40 per charge. (I was also charged $25 per transaction by the retailer when the charges were reversed.) I asked the bank to refund me the fees but they have refused. I am thinking of taking them to small claims but thought I should get a legal opinion first.
Thanks!
Submitted: 10 months ago.
Category: Consumer Protection Law
Expert:  Lucy, Esq. replied 10 months ago.

Hi,

I'm Lucy, and I'd be happy to answer your questions today.

First of all, what you're talking about is not overdraft protection. Overdraft protection means that you have a bank account or credit card attached to your checking account, and money is transferred to cover each charge. If you had overdraft protection, all of these charges would have been approved and paid, and you'd have an overdraft protection fee. Based on what you've described, you do not have overdraft protection, which means that the bank would only be liable if they told you that you were protected.

When you opened the account, they should have given you a stack of disclosures or referred you to their website to get them. By signing the account signature card, you're saying "I agree to the terms and conditions of this account," which basically means you're saying that you got the disclosures, even if you didn't. That's important, because it means those terms are binding on you. And the disclosures should say that the bank has discretion to approve or return transactions at their discretion.

Here's the problem with check card purchases. When you run your card, the merchant sends an inquiry, checking to see how much money is in the account. Those inquires fall off the account and are only officially charged when the bank receives a signed copy of your receipt (or a telephone/internet authorization). When they get the inquiries, the bank has no possible way of knowing what checks you have outstanding, or if there are other check card purchases that are going to come through, or if you withdrew cash from another bank's ATM that they aren't aware of you. And that means that it's impossible to rely on the bank to decline charges when you don't have the money. It's up to the account owner to know how much is in the account and only make a purchase when you know the funds are there or you don't mind paying an overdraft charge.

Bank disclosures are VERY well written to reduce the bank's liability in this type of situation. And that unfortunately means that the chances of winning a small claims suit against the bank based on the facts you've provided is quite low. You haven't pointed to anything that the bank did wrong, since they're not obligated to decline transactions. What you can do is call and ask to talk to a supervisor, explain the mistake, and see if they would be willing to reimburse some of the fees as a courtesy. Sometimes they will.

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