Nsf return item fee bank of america

New York CNN Business  — 

Fees for bounced checks or lacking enough money in your account could soon be a thing of the past.

Bank of America (BAC) is the latest major financial institution to announce that it is ending fees for insufficient funds. It also plans to cut overdraft fees from $35 to $10.

The end of the bounced check fee goes into effect next month, Bank of America said in a press release Tuesday. The overdraft fee reduction will begin in May.

Bank of America said that once all these latest changes go into effect, the bank will wind up slashing its fees for overdrafts by 97% from 2009 levels.

“Over the last decade, we have made significant changes to our overdraft services and solutions, reducing clients’ reliance on overdraft, and providing resources to help clients manage their deposit accounts and overall finances responsibly,” said Holly O’Neill, president of retail banking for Bank of America, in the release.

Bank of America’s move comes a little more than a month after Capital One (COF), the nation’s sixth-largest consumer bank by assets, said it would stop penalizing clients for taking out more cash or writing checks for more money than they have in their account.

BofA is the second biggest bank in the United States, trailing only JPMorgan Chase (JPM).

Smaller banks such as Ally and digital-only financial firm Alliant have also recently eliminated overdraft fees.

Meanwhile. PNC (PNC), the nation’s seventh largest bank, launched a so-called low cash mode last year that makes it easier for customers to manage their accounts on their smartphones in order to avoid fees.

Overdraft fees have been a lucrative, but controversial, source of revenue for banks. Regulators have argued that those who can afford the fees the least, the nation’s poorest, often wind up paying the most.

The Consumer Financial Protection Bureau said in a statement last month that banks pocketed nearly $15.5 billion in overdraft fees in 2019 — and that 40% of the fees generated by big banks were brought in by JPMorgan Chase, BofA and Wells Fargo (WFC).

Senator Elizabeth Warren lambasted JPMorgan Chase CEO Jamie Dimon last year for its fees, referring to him as “the star of the overdraft show.”

But JPMorgan Chase told CNN Business in December it has already taken some actions on overdraft charges and non-sufficient funds fees.

“We eliminated the non-sufficient funds fee and significantly increased the amount a customer can overdraw before overdraft fees are charged,” said Elizabeth Seymour, a spokesperson for the bank, last month. “These changes reflect our continuous efforts to offer the best, most competitive products and services our customers want.”

The bank also said in December that starting this year, it will give customers until the end of the next business day the chance to boost balances so they can avoid overdraft fees from the previous day.

JPMorgan Chase customers will also have access to direct-deposited paychecks up to two business days early.

But even if big banks eliminate many overdraft charges, they are doing just fine without them. Financial stocks have surged so far this year and are up sharply over the past six months thanks to rising long-term bond yields, which help make mortgages and other loans more profitable for banks.

JPMorgan Chase, Wells Fargo and Citigroup (C) will all report fourth quarter earnings Friday. BofA reports its latest results next week.

What Are Non-Sufficient Funds (NSF)?

Non-sufficient funds (NSF), or insufficient funds, is the status of a checking account that does not have enough money to cover all transactions. NSF also describes the fee charged when a check is presented but cannot be covered by the balance in the account. 

Customers will see a “non-sufficient funds” or “insufficient funds” notice on a bank statement when attempting to withdraw more money than their account holds.

When payment cannot be completed it is often considered as “bounced." If a bank receives a check written on an account with insufficient funds, the bank can refuse payment and charge the account holder an NSF fee. Additionally, a penalty or fee may be charged by the merchant for the returned check.

Key Takeaways

• A checking account is said to have “non-sufficient funds” (NSF), or "insufficient funds” when it lacks the money needed to cover transactions.
• The acronym NSF also references the fee a customer is charged for presenting a check or payment that cannot be covered by the balance in the account.
• Consumers can avoid NSF fees by opting for overdraft protection through their banks.

How Non-Sufficient Funds Fees Work

Banks often charge NSF fees when a presented check is returned or payment cannot be made due to a lack of funds to cover it. NSF Fees average $34 each, according to 2022 data from the Consumer Financial Protection Bureau.

When a check is written and deposited by the payee, their financial institution must make the funds available to them within two business days after they make the deposit. If funds are not available from the payer's bank account, it is deemed as insufficient and an NSF fee is assessed.

Banks provide account holders with several options to avoid the penalties associated with an insufficient funds transaction. Customers can opt out of overdraft policies that allow the bank to cover charges and add an NSF fee, or link at least one backup account, such as a savings account or credit card to fund the insufficient account.

NSF Fees vs. Overdraft Fees

Non-sufficient funds and overdrafts are two distinct bank transactions. Both relate to insufficient funds and can trigger fees. Banks charge NSF fees when they return presented payments without payment, like a check, and overdraft fees when they accept and pay the checks that overdraw checking accounts.

A customer with $100 in a checking account may initiate an automated clearing house (ACH) or electronic check payment for a purchase in the amount of $120. If the bank refuses to pay the check, an NSF fee is incurred. If the bank accepts the check and pays the seller, the checking account balance falls to –$20 and incurs an overdraft (OD) fee. 

Overdraft protection is often an option for banking customers. If a customer has $20 in a checking account and attempts to make a $40 purchase with a debit or check card and has not opted-in to the bank’s overdraft plan, the transaction will be declined by the retailer.

If the customer has OD protection, the transaction may be accepted, and the bank may assess an OD fee. However, if the customer wrote a check for the $40 transaction, the bank may honor it and assess an OD fee or reject it and assess an NSF fee, regardless of whether or not the customer has joined the overdraft program.

How to Avoid NSF Fees

• Properly budget for monthly payments
• Avoid intentionally writing a check or making a payment for more than the current checking account balance.
• Monitor account balances, debit card transactions, and automated payments.
• Link multiple accounts like a checking and a savings account so the money will automatically move from one to the other to cover shortfalls.
• Look to banks for overdraft lines of credit, a special product to apply for to cover any issues with insufficient funds. An overdraft line of credit requires a credit application, which considers a customer's credit score and credit profile in determining approval.

Many banks now allow you to set up low-balance alerts: You get a text or email notification when the funds in your account drop below a figure you designate. That can help you keep track of how much money is currently available, and you can adjust your spending accordingly.

Criticism of NSF Fees

The CFPB oversees and protects consumers while using financial services. In 2010, sweeping bank-reform laws addressed overdraft and NSF fees and implemented guidance allowing consumers to opt for overdraft protection through their banks. More protections for consumers become increasingly urgent as financial institutions mishandle fee policies.

Financial institutions have reordered transactions, processing debits to consumer accounts in a way to maximize overdraft fees by deducting the largest first, rather than in chronological order. In 2011, Bank of America settled a two-year-old class action for $410 million for reordering customer transactions and charging overdraft fees in this way. TD Bank paid over $62 million in a class action settlement for the same mismanagement of fees in 2010.

In 2020, the Bank of Hawaii set up a settlement fund of $8 million to repay clients who had been charged for authorized customer payments while funds were available, but settled the debits once the accounts moved to an insufficient status and charging fees. The bank agreed to forgive overdraft fees that remained unpaid.

Financial institutions have practiced single transaction, multiple fee activity, assessing more than one NSF fee on a single item or transaction if the payment request is automatically re-submitted repeatedly by the creditor. In 2020, the Navy Federal Credit Union settled such a case for $16 million, without conceding any wrongdoing or liability.

Frequently Asked Questions

Why Do Banks Charge an NSF Fee?

Banks charge NSF fees for the cost and inconvenience of having to return declined checks. "For many, overdraft/NSF fees have emerged as the No. 1 generator of fee income and is one of the bank’s most profitable sources of revenue," a Woodstock Institute report noted, quoting American Banker.

Are NSF Fees Legal?

Yes, NSF fees are legal on bounced checks and should not be charged on debit card transactions or ATM withdrawals. The U.S. government doesn't regulate NSF fees or the size of fees but The Truth in Lending Act does require banks to disclose their fees to customers when they open an account.

Can an NSF Fee Be Waived?

Bank policies vary, but an NSF fee can often be waived through an NSF reversal after the fact, especially if it's the first time that it's been assessed. Calling the bank's customer service line and requesting a refund is the best course of action for a consumer.

Do NSF Fees Affect Your Credit?

NSF fees don't affect a customer's credit or credit score directly because banks do not report the transactions to credit bureaus such as Equifax, TransUnion, and Experian.

However, a bounced check can make delay a credit card or loan payment which may affect a customer's credit score.

What Happens If I Don't Pay My NSF Fees?

Customers don't have an option to avoid paying NSF fees, as the bank automatically deducts them from the account.

The Bottom Line

Non-sufficient funds and the fees they incur are irritating, but are common banking occurrences. Though increasingly the focus of criticism and lawsuits, NSF fees remain legal, but the CFPB helps to protect consumers by monitoring such charges. Customers can avoid fees by monitoring their bank balances or by signing up for overdraft protection.

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