What are NSFs (not enough funds)?
Non-sufficient funds show If you don’t have enough money in your checking account to cover your purchase,. NSF also refers to the fee charged when a check is given but the account balance is insufficient.
When customers try to take out more money than their account has, they will see a message that says “non-sufficient funds” or “insufficient funds” on their bank record.
Once a payment can’t be made, it’s usually called “bounced.” If a bank gets a check for an account that doesn’t have enough money, it can refuse to pay and charge the account user an NSF fee. The business may also charge a fee or penalty for the returned check.
How Fees for Not Having Enough Funds Work
Banks often charge NSF fees when a check is returned or payment can’t be made because there aren’t enough funds in the account. The Consumer Financial Protection Bureau (CFPB) says that each NSF fee costs, on average, $34.
When the receiver writes and deposits a check, their bank has to give them the money within two business days. A non-sufficient funds (NSF) fee is charged if the payer’s bank account does not have enough money.
Banks give account users several ways to avoid the fees that come with a transaction that doesn’t have enough funds. Overdraft policies let the bank charge fees and add an NSF fee. Customers can choose not to use these policies or link at least one backup account, like a savings account or credit card, to pay the account that isn’t enough.
In a report released in 2023, the CFPB said it had found many banks charging repeated NSF fees for the same transaction, sometimes as soon as the next day. Even though this isn’t against the law, the CFPB said that customers couldn’t avoid the fines, which some institutions made millions of dollars from, and that competition or consumer benefits didn’t justify the fees. Because of this, almost all the banks and credit unions the CFPB talked to said they would stop charging NSF fees altogether.
How NSF Fees and Overdraft Fees Work
Overdrafts and “insufficient funds” are two types of bank transfers. Each one has to do with insufficient money and can lead to fees. Banks charge NSF fees when they return payments that haven’t been paid, like a check. They also charge overdraft fees when they accept paychecks that go into overdrawn accounts.
A person with $100 in their checking account can pay for a $120 item with an automatic clearing house (ACH) or electronic check. An NSF fee is charged if the bank doesn’t pay the check. If the bank takes the check and pays the seller, the checking account balance drops to $20, and an overdraft (O.D.) fee is charged.
Customers of many banks can get overdraft insurance. If a customer with $20 in their checking account tries to use a debit or check card to pay for something worth $40 but hasn’t signed up for their bank’s overdraft plan, the store will not process the transaction.
If the customer has O.D. protection, the purchase might go through, and the bank might charge an O.D. fee. If the customer wrote a check for $40, the bank could either accept it and charge an overdraft fee or reject it and charge an NSF fee, even if the customer is not in the overdraft program.
How to Stay Away from NSF Fees
- Make a reasonable budget for your monthly bills.
- Do not purposely write a check or pay for more than what is in your checking account.
- Check your account balances, debit card activities, and scheduled payments.
- If you link multiple accounts, like a checking account and a savings account, the money will instantly move from one to the other to make up for any missed payments.
- Check with banks about overdraft lines of credit, a product you can get if you don’t have enough money. You must complete a credit application to get an overdraft line of credit. Your credit score and history are used to determine your approval.
- You can now set up low-balance alerts at many banks: When the money in your account drops below a certain amount, you get a text or email message. That can help you track how much money you have on hand so you can change how much you spend.
Thoughts on the NSF Fees
The CFPB keeps an eye on and protects people who use banking services. In 2010, major bank reform rules eliminated overdraft and non-sufficient funds (NSF) fees and gave customers information on how to get overdraft protection through their banks. As financial companies mess up fee policies, protecting consumers becomes more and more essential.
Banks have changed the order of transactions so that they charge overdraft fees more often by taking out the most significant transactions first instead of the ones that happened in the order they happened. Bank of America paid $410 million to settle a class action lawsuit that had been going on for two years because they reordered customer transactions and charged overdraft fees in this way. For the same mistake with fees in 2010, T.D. Bank paid over $62 million in a class action settlement.
In 2020, the Bank of Hawaii set up an $8 million settlement fund to pay back customers charged for approved payments when there were enough funds in their accounts. The bank settled the debits once the accounts were marked as “insufficient” and started charging fees. The bank promised to waive any overdraft fees that were still owed.
Financial institutions have used “single transaction, multiple fee” behavior, which means they have charged more than one NSF fee on the same item or transaction if the creditor automatically sends the payment request repeatedly. The Navy Federal Credit Union paid $16 million to settle a case like this in 2020, but they didn’t admit they were wrong or take responsibility.
After this, the CFPB released a study in 2023 that found many banks and credit unions had done the same things Navy Federal had. The banks then said they would repay customers who had been harmed and announced plans to stop charging NSF fees.
Questions People Ask Often
Why do banks charge a fee for not paying?
Banks charge NSF fees because it costs them money and time to return checks that have been refused. “For many, overdraft/NSF fees have emerged as the No. 1 generator of fee income and are one of the bank’s most profitable sources of revenue,” a Woodstock Institute study quoted American Banker.
Are NSF fees okay?
Checks that aren’t clear should not be charged NSF fees, but debit card purchases and ATM withdrawals should not be charged fees. The U.S. government doesn’t control NSF fees or their amounts, but when customers open an account, the Truth in Lending Act says that banks must tell them about their costs.
Is it possible to get rid of an NSF fee?
Different banks have different rules, but if it’s the first time an NSF fee has been charged, it’s often possible to get it dropped through an NSF reversal. The best thing for a customer to do is call the bank’s customer care line and request a refund.
Does having NSF fees hurt your credit?
Because banks don’t send NSF fees to credit bureaus like Equifax, TransUnion, and Experian, they don’t directly affect a customer’s credit or credit score.
On the other hand, a lost check can cause a customer to miss a credit card or loan payment, which could hurt their credit score.
What Will Happen If I Do Not Pay My NSF Fees?
Customers can’t avoid NSF fees because the bank immediately takes them out of the account.
Conclusion
- A checking account has “non-sufficient funds” (NSF) or “insufficient funds” when it doesn’t have enough money to cover your activities.
- NSF also stands for the fee a customer has to pay when they bring in a check or payment that the account balance does not cover.
- Customers who choose overdraft insurance through their bank can avoid NSF fees.
