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Overdraft Protection

Traditionally, to discourage account holders from writing checks that they do not have money to cover, banks charged a Non-Sufficient Funds (NSF) fee and returned the check as unpaid.

Some banks and credit unions offer a service traditionally called “overdraft protection.” Account holders apply for this account and, if approved, have an agreement with the bank for a line of credit attached to their checking account to cover overdrafts.  The account holder is charged interest on the amount of the overdraft for the time that the overdraft is outstanding. The interest rate charged is known in advance as part of the written agreement and cannot, by law, be more than 25%. 

“Bounce protection” (sometimes called “overdraft privilege” or “bounce safe”) is different from traditional overdraft protection.  Instead of bouncing a check the bank may decide to cover the check, for a fee, until the account is brought back to a positive balance.  Unlike the rate that may be charged in connection with a traditional overdraft line of credit, the fees that may be charged are not regulated by law.

How Does It Work?

What to Watch Out For:

What You Can Do to Protect Yourself

If you have questions about banking or have a problem with a particular bank call the DFS at 1-877-BANK-NYS or file a complaint online.



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