NSF Fee for Non-Sufficient Funds – Can it be Waived?

NSF checks are commonly known as “bounced” or “bad” checks. It happens when 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. By law, certified checks and cashier checks must be made available to you within one business day of deposit.

• The term “non-sufficient funds” (NSF), or “insufficient funds,” refers to the status of a checking account that does not have enough money to cover transactions.
• The acronym NSF also describes the fee charged when a check is presented but cannot be covered by the balance in the account.
• The average NSF fee in the U.S. ranges between $27 and $35.
• Writing an NSF check may result in criminal charges, especially for large amounts.
• Consumers can opt for overdraft protection through their banks, which affects credit and debit card transactions in particular.

Source:investopedia

NSF Fee: How it Works

Banks often charge NSF fees when a payment is returned due to insufficient funds. A similar fee may be assessed even when a bank honors payments from accounts with insufficient balances. The latter scenario describes an account overdraft (OD).  The term is often confused or used interchangeably with non-sufficient funds.

Banks provide account holders with several options to avoid the penalties associated with an insufficient funds transaction. Customers can choose to opt-out of certain overdraft policies that allow the bank to cover charges and add an NSF fee. You usually also have the option to link at least one backup account, such as a savings account or credit card. The funds required for the transaction are then taken from the linked account, which can serve as an additional source of funds.  Non-sufficient funds and overdrafts are two different things, though both can trigger fees and penalties.

Source: ibid

Overdraft vs. NSF Fee

Overdraft and NSF fees are often described interchangeably.  Some financial institutions even treat them the same.  However, there is a significant difference between the two.  A bank can charge an overdraft fee when the account doesn’t have sufficient funds to cover a debit. In that case, the bank will cover the overdraft. Overdraft protection is sometimes called courtesy pay since a bank helps you cover the amount.  NSF fees kick in when an account owner has insufficient funds and the bank does not pay the overdrawn amount. This is also referred to as a bounced or returned check.

Banks charge NSF fees when they return presented payments due to insufficient funds.  Banks charge overdraft fees when they accept checks that overdraw checking accounts.  For example, say you have $100 in your checking account and write a check for purchase in the amount of $140. If your bank refuses to pay the check, you incur an NSF fee.  Also, you will face any penalties or charges the seller assesses for returned checks. However, if the bank accepts the check and pays the seller, your checking account goes negative.  Your balance falls to $-40 and you incur an overdraft fee instead. Either way, the fee assessed by the bank reduces the available account balance.

NSF Fee vs Overdraft Protection

You can avoid NSF fees by properly budgeting or keeping a buffer amount in your checking account.  This will help so that you do not intentionally or inadvertently overdraw. In addition, you should carefully monitor your use of checks, debit cards, and automated charges.  These are the most common causes of overdrafts.

Many banks offer overdraft lines of credit. This is a special product that you can apply for to cover issues with insufficient funds. An overdraft line of credit requires you to complete a credit application.  The bank usually considers your credit score and credit profile in determining approval.

If you are granted an overdraft line of credit, you typically receive a revolving credit line of approximately $1,000. This account can be linked to cover any transactions made with insufficient funds in the primary account. It can also be used for cash advances to your checking account. In 2010 the U.S. government created a set of sweeping bank-reform laws to address overdraft and NSF fees among other consumer banking issues. Under the laws, consumers can opt for overdraft protection through their banks. Opting in to overdraft protection affects credit and debit card transactions in particular. Like any banking service, it can pay to read the fine print and study the pros and cons. (Source: ibid)

Examples of NSF Fee vs Overdraft Fees

• Overdraft Fees – Say you have $20 in your checking account and attempt to make a $40 purchase with a debit card. If you have not opted into your bank’s overdraft plan, the transaction will be declined by the retailer.  If you have opted in, the transaction may be accepted, and the bank may assess an overdraft fee instead.
• NSF Fees – If you write a check for $40, the bank may honor it and assess an OD fee.  Or, the bank can reject it and assess an NSF fee.  This is regardless of whether you have opted into its overdraft program.

NSF Fee Lawsuits

Banks and credit unions have been defendants in lawsuits over allegations they charge unacceptable numbers of NSF fees for a single transaction.

• In one NSF fee class action lawsuit, Digital Federal Credit Union was accused of having a “routine practice of charging two or three non-sufficient funds fees on a single transaction.”  Digital Federal Credit Union’s own documents allegedly indicate only one NSF fee would be charged no matter how many times the request for repayment was processed. If each request for repayment is considered a new, unique item, then the single NSF fee ends up equaling multiple fees for what is truly a single transaction.
• In another lawsuit, USAA Federal Savings Bank was accused of breaching its contract to only charge one NSF fee for a single transaction. A woman alleged USAA charged her $29 three different times as a credit card payment was attempted multiple times.  Consumers allege banks are making extraordinary amounts of money by sometimes charging more for NSF fees than the initial amount of the intended transaction. (Source:topclassactions.com)

NSF Fees – Frequently Asked Questions

What is an NSF Fee?  An NSF Fee is commonly known as an Insufficient Funds Fee or a Non-Sufficient Funds Fee. It is a bank fee charged at the point of the transaction when there are not enough funds from your checking account available to cover the transaction. It can also happen when you write a check that ends up bouncing upon redemption.

How is the NSF Fee different from an overdraft fee?  An NSF Fee occurs as part of an outright rejection of a purchase. The bank is charging you a fee for attempting to make a purchase without a sufficient amount of funds. An overdraft occurs if you are opted-into an overdraft protection service in which you authorize the bank to make the purchase for a flat fee, at which point you then owe the bank the cost of the purchase and the associated overdraft fee. In some cases, banks may use these two fee types interchangeably on bank statements.

How much is an NSF Fee?  NSF Fees vary from bank to bank but typically are between $24-$45.

Can I waive or refund my NSF Fee?  Yes, you can negotiate with your bank to get your NSF fees and all other bank fees refunded.

Up Next: What Is Market Risk Premium?

The market risk premium is the difference between the expected return on an investment and the risk-free rate.  The market risk premium is part of the Capital Asset Pricing Model (CAPM).  Analysts and investors use it to calculate the acceptable rate of return for an investment.  At the center of the CAPM is the concept of risk and reward.  Investors always prefer to have the highest possible rate of return combined with the lowest possible volatility and risk.

The market premium is the additional return an investor will receive (or expects to receive) from holding a risky market portfolio instead of risk-free assets.  Simply put, the market risk premium is the return that you earn on stocks above what you could earn by investing in government bonds. For example, if the rate of return on the market is 12% when the rate on a government bond is 4%, the market risk premium is 8%.