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Reply #5: Most overdraft fees are illegal, such fees violate Contract law. [View All]

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happyslug Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Jul-12-09 03:24 AM
Response to Original message
5. Most overdraft fees are illegal, such fees violate Contract law.
Edited on Sun Jul-12-09 03:25 AM by happyslug
The problem is to get your money back you have to sue the bank, prove the overdraft had nothing to do with the cost incurred by the bank do to the overdraft. Once that is shown, you get a Judgment equal to the Cost of Filing in Court AND the overdraft, no attorney fees and the Bank has the right to close your account.

Most overdraft fees are illegal for the simple reason the Courts have long ruled that any clause in a Contract that is punitive is illegal. The non-breeching party in a contract can sue the breeching party for any cost their incur do to the breech, BUT such Judgments are limited to what cost is incurred by the non-breeching party NOT any stated "penalty" given in a Contract if it is breeched.

Now, the courts do permit parties to agree to "Liquidated Damages" that approximates cost incurred by the Non-breeching party when the contract is breeched, but such "Liquidated Damages" MUST approximates the cost that the non-breeching party incurred NOT some fee that is designed to "punished" the breeching party for his breech.

In the case of Banks and overdraft fees, the issue is how much did the bank incurred do to the overdraft? Most banks cost to handle such overdrafts is less then a Dollar, but the fees can be as high as $50.00 (my bank charges $32.00 according to its web site). Thus a $5 dollar overdraft fee could approximate the cost incurred by the Bank do to the overdraft (i.e. we are NOT talking about the amount of the actual check, which would be clearly damages, but only the additional fees incurred when the overdraft occurs). On the other hand, the $32 or more overdraft fee is clearly intended NOT to approximate the cost incurred by the Bank but to punish the person who wrote the overdraft, and that is clearly punitive in nature and thus a violation of Contract law.

Now, having said the above, how to you get the overdraft eliminated? First you can try to get the bank to waive it, most banks will if you go to the bank and complain. If that does not do it, you can write them a letter, if that does not do it you can file in your local Justice of the peace (Or whatever JPs are called in your state) for the amount of the overdraft. At that point the bank will most likely drop the overdraft and even pay the filing fees, but then tell you to take your bank business elsewhere.

Most people can NOT take the day off to complain to the Bank, nor the day off to file and then go down to the Justice of the Peace for the hearing, thus most people accept the overdraft and the Bank keeps the money. High Overdraft fees (i.e. more then $5) are illegal, but the only way to enforce the law is to file an action in court every time it happens, and that is difficult to do for most people. Thus these fees are a profit center and will continue to be so until someone does something and no one will. This we have to attack these over draft fees every time they come up by asking for them to be repaid and if not repaid file in Justice of the Peace Court to get them returned. If enough people did this such overdrafts will quickly end, but it will take a lot of people filing in court against a lot of banks to get the banks to return to something close to the cost their incur do to the overdraft NOT the $32 or $50 most banks charge today.

Side note: Most states have CRIMINAL Statutes on returned checks, i.e. overdraft checks returned to the person the check was written to. Such Criminal Statutes permit such people to get $20 for the cost their incurred do to the writing of the bad check. That fee is permitted by statute and thus NOT covered by the above common law rules on Contract law. Please note this is a fee to cover the costs incurred by the person you wrote the check to NOT the overdraft fee the bank charged you when the check hit your account AND bounced it back to the person you wrote it to. Since this is permitted by Statute it is legal, but notice it is a fee of the person you wrote the check to NOT the fee incurred by you when the check was bounced back to that person.

Second Side Note: In most states if you wrote a check and it bounced and it was for more then $100, it is a CRIMINAL FELONY (misdemeanor if less then $100) if you did NOT have the money in the back to cover the check (Being criminal this means you INTENDED to write a bad check NOT just screwed up on how much money was in the account). It is a defense to such criminal charges that you honored the check (i.e. paid if off before any charges were filed) or had the money in the bank, but by the time the bank received the check the money was gone (Mostly in cases when someone attached the money do to a Judgment against the Check Writer). This is NOT the type of Check writing the article is talking about but I want to make it clear to people reading the above that contract law does NOT come into play when ever someone writes a bad check, knowing it is bad AND knowing that it will never be honored by any bank. The above (Not this and the previous paragraph's comment on Criminal Law) covers checks that are honored (i.e. paid on) by the writer of the Check (Or his agent the bank) and then that bank charges a fee for the overdraft AFTER paying off the check (Or in most cases BEFORE paying off the Check as your deposit is credited to your account after the check has bounced). Overdraft fees that have nothing to do with criminal check writing AND any costs incurred by the banks are illegal penalties and this violation of Contract law.
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