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What Are Bank Overdraft Fees?
Bank overdrafts, according to the Government of Canada, are instances in which a bank or credit union customer does not have enough money in their account to cover a payment or withdrawal. Many financial institutions offer overdraft protection services that allow customers to avoid late payment fees or nonsufficient fund (NSF) fees.
Customers must opt in to a credit union or bank’s overdraft protection program and give the institution permission to allow a transaction to proceed, even when there is not enough money in the account.
However, overdraft protection programs usually come with their own fees, the Government of Canada warns, noting that when a bank or credit union covers an overdraft, it usually assesses a fee. In addition, these fees can be charged multiple times.
An account holder can find themselves owing hundreds in fees if they use their debit card multiple times when their account is low, according to the Government of Canada. In addition, banks and credit unions sometimes assess multiple overdraft fees if the account is negative for more than one day.
Canadian banks and credit unions that charge overdraft fees include TD, BMO, Scotiabank, HSBC, RBC, and CIBC, and others.
Consumers who were charged overdraft fees or NSF fees by their bank or credit union and believe those fees are unfair or abusive may benefit from joining a nationwide lawsuit investigation.
How Much Do Canadians Pay in Bank Overdraft Fees?
In 2019, banks garnered more than $46 billion in profits, including overdraft fees paid by Canadians, according to advocacy group Democracy Watch. These bank overdraft fees averaged $26 in 2019, according to a study by NerdWallet, and some banks charged as much as $35.
The study also revealed that over half of Canada’s banks also charge multiple overdraft fees on accounts that continue to lack sufficient funds.
Advocates have pleaded with financial institutions to reduce fees assessed on Canadians, particularly during the ongoing coronavirus pandemic.
In fact, more than 95,000 Canadians signed a petition to make Canada’s biggest banks do more to help, according to Radio Canada International. Petitioners want to see big banks reduce interest on credit cards, process small business loans, and offer mortgage and loan deferrals, as well as to cut overdraft and other fees in half. They also want to see banks keep fees low into the future.
How Can Consumers Avoid Overdraft Fees?
There are three ways Canadians can avoid overdraft charges, according to Canadian Business.
First, they can be sure to link their accounts as a backup if they end up short of funds. Sometimes these services are free, but some banks charge approximately $10 to make the transfer.
In addition, customers can opt out of overdraft protection programs or, if they have already opted in, ask to be removed. Transactions that would overdraft an account are then declined at the point of sale, the government’s website says; however, consumers may be on the hook for NSF fees or late payment fees.
Consumers can opt to bank with a financial institution that does not even offer an overdraft protection program and its associated fees. In this scenario, transactions that overdraft the account would also be declined at the point of sale.
Further, the website notes that, in some instances, the bank or credit union may agree to reverse the fee if asked and if it is the first time the customer overdrew their account, and is in good standing with the financial institution.
However, some bank and credit union customers say that the overdraft fees assessed by some financial institutions are abusive and excessive.
“Every dollar of excess profit that banks gouge out of Canadian consumers hurts spending and job creation,” advocate and Democracy Watch coordinator Duff Conacher said in an interview with CBC News.
Overdraft and other bank fees are on the rise for Canadians, according to Canada’s Financial Consumer Agency.
Bank Overdraft Fees Lawsuit Claims
A class action lawsuit in British Columbia claimed overdraft fees charged by credit unions in the province constituted criminal interest, according to law firm McCarthy Tetrault. In 2018, a court of appeals agreed, finding that an institution’s agreement to cover customers who overdraw their account is, in essence, a loan. The court concluded laws regarding permissible interest charged on loans apply.
The appeals court reasoned that any fees assessed on customers that overdraft their accounts in excess of $5 should be considered “interest” under the law.
Other lawsuits allege major banks have charged excessive overdraft fees and even hidden fees.
Have you been charged a bank overdraft fee or any other fee you believe was unfair within the last five years? Submit your information by clicking the button below for a free case evaluation from an experienced lawyer.
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One thought on Bank Overdraft Fees: When Should You File a Lawsuit?
I was charged over $2500 in nsf fees. They insist they called me, but i have no record of their calls on my phone, nor a message left. CIBC wants to give me $1000 back and make me sign a waiver of liability here and any time in future. What should I do?