Bounce Protection and Overdraft Protection:  Is There a Difference?

By Dawn Hicks

The answer is yes. 

Many confuse bounce protection and overdraft protection, assuming they are the same. There are slight differences. Bounce protection (also known as “bounced-check protection” or “courtesy overdraft protection”) does not involve a contract or a monthly fee, is not subject to the guidance of Regulation Z (Truth in Lending Act) and gives the financial institution the option of paying an overdraft.  On the other hand, overdraft protection does involve a contract and a monthly fee and is subject to the guidance of Regulation Z, and the institution is obligated to approve the overdraft as long as the funds are available in another of the consumer’s accounts.

Consumer Concerns

  • Automatic enrollment of consumers into a bounce protection plan incurs per-bounced check fees and a daily fee (of $2 to $5) that accrues until the balance is paid.  

  • Automatic enrollment, rather than a contractual agreement, gives the bank the right not to pay an overdraft at any time despite previous payments of overdrafts.

  • Consumers must opt-out of this service to avoid these charges despite the fact that many may not even be aware that they are enrolled.

  • With bounce protection and overdraft protection, some banks pad the consumer’s account by including the overdraft privilege amount in the available balance of a transaction account on the ATM receipts and through automated telephone banking systems.

What the Consumer Should Know

The best way to avoid overdraft fees is to keep record of all account transactions. One who maintains good records and keeps track of checking account balances may not need overdraft protection or bounce protection.

Overdraft protection, however, can be a good product for the person who would rather pay a monthly fee than have checks or point-of-sale transactions denied while incurring an overdraft fee from his bank as well as one from the payee (entity to whom the check was written). It’s a matter of choice and what works best for the consumer.

 Comparison Chart

Bounce Protection/
Courtesy Overdraft Protection

Overdraft Protection

How Do I Enroll?

You are automatically enrolled

You must sign up for it

Is There a Monthly Fee?

No

Yes

Are There Any Other Fees?

bounced-check /overdraft fees

transfer fees

courtesy overdraft fees

overdraft line of credit fees (includes base fee and APR)

link to cash advance on credit card fees (includes base fee and APR)

link to savings account fees

Do I Have to Have Another Account with the Bank?

You may or may not have another account with the bank

You must have another account, credit card account, or equity line with bank that can cover the overdraft

Does the Bank Consistently Pay My Overdraft Items?

Approval of overdraft items is at the discretion of the bank which is not obligated to pay an overdraft

Bank will always use this feature as long as there are funds available in one of the accounts

What is the Benefit of This Protection?

Saves the cost of additional charges from returned checks

Saves the cost of additional charges from returned checks

Am I Protected Under Regulation Z?

No

Yes

Am I Protected Under Regulation DD?

Subject to the disclosure & advertising rules of Regulation DD

Subject to the disclosure & advertising rules of Regulation DD


 

 

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