Fact Sheet Overdraft Protection

							                       1303 J Street, Suite 600, Sacramento, CA 95814-2939 T: 916/441-7377 F: 916/441-5756


Fact Sheet: Overdraft Protection

Overdraft protection is highly valued by consumers.

      •   Banks created overdraft protection programs as a service and accommodation to their
          customers. Paying an overdraft can save the consumer additional fees imposed by the recipient
          of a bounced check, such as a merchant or creditor, as well as additional interest and late
          payment fees.

      •   Studies have validated the fact that consumers appreciate banks accommodating them by
          paying overdrafts and want their overdrafts paid when they make purchases or pay bills. In
          2008, the Federal Reserve conducted consumer testing and found that 8 of 9 customers want
          overdraft services.

      •   A recent study (August 2009) by the American Bankers Association found that 82% of bank
          customers did not pay an overdraft fee in the previous twelve months.

      •   Of those who did pay an overdraft fee in the past 12 months, almost all (96%) said they were
          glad the payment was covered. Only four percent said they wished the bank had refused the
          payment.

Banks are authorized to process checks/post items in order that they deem most expedient.

      •   Banks may have differing standards or policies regarding the order in which they post checks
          and other checking account transactions. It is necessary to allow financial institutions to pay
          items in any order since an institution would have no way to know which items a customer
          would prefer to be paid or accepted.

      •   The stakes are often higher for consumers’ larger check amounts, which is why many banks
          use the high-to-low method of check processing, where each day the largest transactions are
          processed first and the smallest last.

      •   It is against the law for banks to process items in a manner for the sole purpose of generating
          increased fees. California commercial code states that banks are required to act in good faith
          and should not engage in practices that maximize returned checks for the sole purpose of
          generating returned check fees.




             Advocacy, Education, Services
                         1303 J Street, Suite 600, Sacramento, CA 95814-2939 T: 916/441-7377 F: 916/441-5756


Not all transactions are processed in real time.

       •   Consumers should be aware that deposit transactions – checks, ATM, debit and credit card –
           may be presented to an account at different times.

       •   Additionally, many overdrafts occur because a point-of-sale transaction is authorized, but
           subsequently at settlement there are insufficient funds due to additional transactions initiated
           by the customer in the interim.

           •   Many companies, including merchants and retailers, do not have the capability to notify
               customers that they do not have available funds at the point-of-sale.

Overdrafts are preventable.

           •   Consumers have the option of linking their checking account to a savings account or
               applying for a line of credit to cover overdrafts. While fees may still apply, these are
               usually less expensive alternatives to overdraft fees.

           •   Some financial institutions do provide an ATM message for their customers in advance of
               a cash withdrawal noting that the withdrawal would exceed the customer's current
               available balance. The customer can choose to proceed - and may do so in response to an
               emergency situation.

To avoid overdraft fees, consumers should always be certain they have funds available to cover the
purchase.

           •   Checking your balance has never been easier. Today you can check your balance by mail,
               in person, online, at an ATM or even from your cell phone or PDA.

For more information on this issue, please contact Beth Mills at 916/438-4413 or
bmills@calbankers.com.

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               Advocacy, Education, Services