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An unavailable funds fee is a penal fee applied by a bank to a client's transaction account when a transaction is posted to said account that has negative available balance, regardless of if the account factually contains a positive physical balance.[1] The fee is distinct from a non-sufficient funds fee, as there is a positive physical balance but some or all the funds are on hold (meaning that the balance is not yet available).
Bank fees such as the unavailable funds fee are contentious and have been the subject of some debate. Consumer advocacy groups have criticised them as opaque and unfair and that they particularly penalise the poor and fees do not reflect the banks' costs. The banks argue that it is a penalty not a transaction fee. These fees have become a major source of income for banks, replacing the traditional account and transaction fees which in many countries have disappeared.[2]
Practice and logistics
editThe "unavailable funds" fee, not to be confused with the "non-sufficient funds" (NSF), "overdraft", "exceed hold" or "overlimit" fees, is a fee that results from a transaction that posts to a negative available balance and a positive physical balance, as applied to a Demand Deposit Account; usually a checking account. The fee is typically applied at the end of the business day, as most banks process transactions at the end of each business day.
An account has two distinct balances: a posted balance (or physical balance) and an account balance. The difference comes from transactions that have been applied to the account but have holds against them. To understand how an "unavailable funds fee" comes about it is important to understand the difference between the two types of balances.
Posted Balance
editThe "posted balance" is money that physically is in the account. This balance is the result of a transaction that has a date in the past. This is the actual or the "real balance" of the money in the account.
Available Balance
editThe "available balance" is the "posted balance" minus the total of the "holds" that have today's date or a date in the future.
For example, if a newly opened bank account contains $100 with $20 on hold, the available balance will be $80.
| Date | Serial number | Description | Amount | Posted Balance | Holds | Available Balance |
|---|---|---|---|---|---|---|
| 01-01-06 | opening balance | $100.00 | $10.00 | $90.00 | ||
| 01-01-06 | Direct deposit | gas | $5.00 | $95.00 | $10.00 | $85.00 |
| 01-01-06 | 1001 | check | $15.00 | $80.00 | $10.00 | $70.00 |
Holds
editA "hold" is money that the bank has either chosen or is not allowed to make available to the customer yet. "Holds" originate from cheque deposits waiting to clear, notice of returns, notice of collection, debit card purchases or direct deposit. A "hold" is assigned a dollar value and a time frame, typically between 1 and 14 days. Holds are not permanent and once the reason for the hold has been resolved, it either becomes a posted transaction or the payment is reversed. At this point, when a transaction posts a fee can be generated.
To illustrate this, the following example shows a number of transactions and the hold balance over a period of 7 days, starting the 1 Jan 2006 until 7 Jan 2006.
| Date | Value | 1 Jan 2011 | 2 Jan 2011 | 3 Jan 2011 | 4 Jan 2011 | 5 Jan 2011 | 6 Jan 2011 | 7 Jan 2011 |
|---|---|---|---|---|---|---|---|---|
| deposit | +$100.00 | $100.00 | $100.00 | $100.00 | ||||
| DBC gas | -$10.00 | $10.00 | $10.00 | $10.00 | ||||
| DBC music | -$15.00 | $15.00 | $15.00 | $15.00 | ||||
| DBC food | -$25.00 | $25.00 | $25.00 | $25.00 | ||||
| DBC Phone | -$15.00 | $15.00 | $15.00 | $15.00 | ||||
| DBC net | -$35.01 | $35.01 | $35.01 | $35.01 | ||||
| total holds | -$00.01 | -$100.00 | -$110.00 | -$175.01 | -$100.01 | -$90.01 | -$25.00 |
Example
editThe following bank statement shows a customer that has over spent by one penny and as a result has generated five fees. The overspending fee used in the example is $30.00 which is typical for the banks that charge this type of fee. These fees occur when a transaction post to the account and the available balance is negative. In this example there is 5 purchases ($10.00 for gas, $35.01 for net, $15.00 for phone, $15.00 for music and $25.00 for food, total =$100.01) and a standard deposit hold period.
| Date | Description | Amount | Posted balance | Holds | Available Balance | Fee Caused | What's on hold |
|---|---|---|---|---|---|---|---|
| 1 Jan 2011 | deposit | +$100.00 | $100.00 | $100.00 | $0.00 | none | $100 deposit |
| 2 Jan 2011 | n/a | $0.00 | $100.00 | $100.00 | $0.00 | none | $100 deposit |
| 3 Jan 2011 | n/a | $0.00 | $100.00 | $100.00 | $0.00 | none | $100 deposit |
| 4 Jan 2011 | n/a | $0.00 | $100.00 | $200.01 | -$100.01 | none | $10.00 gas, $35.01 net, $15.00 phone, $15.00 music, $25.00 food, $100 deposit |
| 5 Jan 2011 | gas | -$10.00 | $90.00 | $90.01 | -$00.01 | unavailable fee | $35.01 net + $15.00 phone + $15.00 music + $25.00 food |
| fee | -$30.00 | $60.00 | $90.01 | -$30.01 | none | $35.01 net + $15.00 phone + $15.00 music + $25.00 food | |
| 6 Jan 2011 | net | -$35.01 | $24.99 | -$25.00 | -$0.01 | unavailable fee | $25.00 food |
| phone | -$15.00 | $9.99 | -$25.00 | -$15.01 | unavailable fee | $25.00 food | |
| music | -$15.00 | -$5.01 | -$25.00 | -$30.01 | overdraft fee | $25.00 food | |
| fee | -$30.00 | -$35.01 | -$25.00 | -$60.01 | none | $25.00 food | |
| fee | -$30.00 | -$65.01 | -$25.00 | -$90.01 | none | $25.00 food | |
| fee | -$30.00 | -$95.01 | -$25.00 | -$120.01 | none | $25.00 food | |
| 7 Jan 2011 | food | -$25.00 | -$120.01 | $0.00 | -$120.01 | overdraft fee | none |
| fee | -$30.00 | -$150.01 | $0.00 | -$150.01 | none | none |
Governance
editUnited States
editNot all overspending fees are officially defined or regulated in the United States.[3] It is up to the individual bank to decide if the Unavailable Funds Fee should be applied, instead it could dishonour the payment to avoid a customer getting into a position where the fee applies.[4]
See also
editReferences
edit- ^ "Summit Bank Again Responds to Customer Concerns; Removes Unavailable Funds Fee from Overdraft Protection Accounts". PR Newswire. February 24, 1999. Retrieved October 6, 2016.
- ^ "How the poor subsidise the rich". The Economist. economist.com. Aug 2, 2010.
- ^ "Overdraft Fees and Protection". Office of the Comptroller of the Currency.
- ^ Kathy Chu (October 4, 2005). "Rising bank fees hit consumers". USA Today.