Every bank has a loss-prevention team responsible for ensuring that the bank does not incur losses of any kind. Loss-prevention teams handle fraud inquiries and investigate instances of theft. However, if you overdraw your account and fail to repay the debt, then your local branch can hand your account over to the loss-prevention team.
When you do not have enough money in your account to cover items that are presented for payment on your account, you incur overdraft or non-sufficient funds fees. You can avoid these fees by linking a credit line or savings account to your checking. In that case, your bank can transfer covering funds to your checking account as and when those funds are needed.
If you have no overdraft protection in place or deplete the available balance of that related account, your account balance goes into the negative. Aside from the initial fees, your bank can also charge an additional overdraft fee if your balance remains negative for more than a week.
When your account balance goes into the negative, your bank sends you a letter that explains the situation and lists any fees that you have incurred. Initially, your local branch retains control of your account. But if you do not make a deposit to resolve the issue within a few months, then in most states your bank can "charge off" your account. When this happens, your bank lists the unpaid overdraft on its accounts as a bad debt. The loss-prevention team may attempt to contact you by phone or mail in order to collect the debt.
Your bank closes your account when it goes to loss prevention; but although you no longer have access to the account, your bank can report the debt to the national credit bureaus. A record of the unpaid debt remains on your credit report for up to seven years although laws in your state may prevent the bank from pursuing you for the debt after five years have passed. The loss-prevention team may decide to sell the debt to a collection agency in which case that firm will continue to call you and send letters demanding repayment. If you owe the bank a significant sum of money, then the bank may sue you to recover the debt if your state's laws allow for such action.
You may hear from your bank's loss-prevention department if you become the victim of fraud or if your bank suspects that certain transactions on your account may have been fraudulent. When this happens, the loss-prevention team does not take control of your account, but the department contacts you to investigate the case and works with you to resolve the issue. Your account remains under the control of your local branch until the loss-prevention team finishes its investigation. At that point, you can either continue to use the account or close it and transfer your money to another account.