There are no federal laws that limit the amount an account holder can overdraw a checking account. Additionally, there are no restrictions on the overall amount of fees a bank can levy on an overdrawn account. However, there are ways that customers can set up accounts so as to avoid overdraft situations and fees.
Opting In Or Out
Account holders with debit cards must decide whether to opt in or opt out of standard bank overdraft procedures. When people opt in, the bank decides whether to approve or decline one-time debit card transactions on a case-by-case basis. The bank can charge an overdraft or non-sufficient funds fee even if the transaction gets declined. When people opt out, they cannot use their debit card for one-time transactions if they have insufficient funds in the linked checking account. The bank cannot charge any fees when people opt out and attempt to use the card.
Exceptions To The Rule
Customers who opt out sometimes overdraw their checking accounts because vendors process debit cards like credit cards and transactions are approved without the bank holding the checking account having an opportunity to approve or decline the transaction. When this occurs, the bank cannot assess an overdraft or non-sufficient funds fee. The bank can still assess fees stemming from checks, online transfers and automatic debits that overdraw checking accounts. Generally, overdraft fees range from $25 to $40.
Two Fees For One Transaction
Banks assess non-sufficient funds fees when a transaction causes the available balance of an account to go negative. When the same item posts to the account the bank can charge an overdraft fee. Checking account balances are updated every night after midnight at which time all transactions actually post. If you overdraw an account by a few dollars but later that day make a deposit of $10 to rectify the overdraft, it may not help. The NSF fee on the initial transaction more than offsets the deposit and means the account remains in the negative. That NSF fee itself then incurs an overdraft fee.
Banks must detail procedures for handling overdraft situations in the deposit agreement and fee schedule provided to customers at account opening. Some banks have daily limits on overdraft fees but many do not. Additionally, banks can choose whether or not to honor checks and other items that are presented for payment against an overdrawn account. As a courtesy, some banks honor such items for long-term customers but typically after a few items post to a negative account the bank stops posting items but continues to charge fees for each item presented.