Overdraft “protection”
Overdraft protection lets you overdraw your account, through checks or check-card purchases, and still lets the transaction clear to the recipient. The bank just effectively issues you a temporary loan for the difference and lets the transaction through normally instead of refusing it. So it’s unlikely that you’ll ever bounce a check or get your card refused, therefore saving you from ramifications of that from the money’s recipients. That’s what you’re being “protected” from. By “free”, they mean that they aren’t charging you interest on these temporary loans.
But the bank still charges you fees if your balance is less than $0. That’s considered a separate risk that you’re not being protected from. So if you overdraw, you’ll still pay that wonderful $35-per-transaction fee.
Nice, huh? You really have to give them credit for this one. This took balls.
Fortunately, you can go into the branch and easily negotiate those fees away if you’ve only done it one or two times and you’re otherwise in good standing.
The situation is a little different in the UK. Until recently, it was possible to get banks to return charges they had made for unauthorised overdrafts, but in July 2007, the Office of Fair Trading brought a court case against the major banks that control ninety-odd percent of the personal current accounts in the UK.
When the case began, the banks were allowed to freeze any ongoing claims for overdraft charges, and I believe this freeze is still in place.
The OFT subsequently won the case, which doesn’t mean that the charges were ruled to be unfair, but merely that the OFT had the right to decide whether or not they were*.
The banks are of course appealing, and the OFT’s investigation into whether or not the charges actually are unfair or not is ongoing. In the meantime, no-one will be getting any money back any time soon, and the banks have responded to the credit crunch by hiking such charges.
More infomation is available on the OFT website.
* It’s pretty counter-intuitive that is not effectively the same result: why would the OFT have brought the case about if it didn’t already think the charges were unfair?
However, apparently things don’t work like that in the big bad world. I remember the kerfuffle back in 2000, when the National Lottery Commission decided to rule Camelot out of the running for the contract to run the lottery for the following 7 years (effectively handing the contract to Richard Branson’s People’s Lottery group).
Except then Camelot won a court case forcing them to be reinstated in the race, whereupon they were awarded the contract.
