Reader Question: Regarding the New Laws with Opting Out of Overdraft Protection

Last week Joseph visited Out of Debt Again and had a question.  I would like to pose this question to the personal finance community to try and answer this for him. Please help with answers in the comments if you can:

I have a question regarding the new laws regarding overdraft and debit cards and hope you could either answer my question, or point me in the right direction.

Here is the scenario. I recently lost my home, and for about a month, I had been staying in hotels until I could find someplace to live. Most of the hotel stays were 1 or 2 nights, as I was constantly trying to find a cheap rate. I live in DC, and the hotels can be quite expensive during the week.

I usually found the best rates on third party sites, like Expedia. These sites, when booking special rates, would charge the card upfont for the entire stay. When you checked into the hotel, they would put an additional hold on the card for any incidentals, which would show as pending transactions, reducing the available balance. This could range anyware from $30 to the full amount of the stay. These holds would be removed by the hotels and then they would charge the account for the actual charge.

I was staying in a hotel for roughly 3 nights, and they put a hold of $800 for the room and another $150 for a non-refundable pet deposit. At the end of the stay, I decided to extend, as I found another good rate for the hotel. I thought the hotel had checked me out, and checked me back in, as the folio I received showed a new balance of $200. I ended up extending another night, receiving a new folio showing a balance of roughly $180.

I then checked out of the hotel, with no new hotel booked due to not finding a decent rate anyware. I received a zero balance receipt from the hotel. Later that day, I checked my balance, which showed roughly $1,000 available, with no pending transactions. I booked 2 nights at a new hotel I found later in the day. Stayed there 2 nights, checked out, checked the balance, which showed $300 available, searched Expedia, found a low rate and attempted to book it. For some unknown reason, the card was not being accepted, so I calle Expedia, who eventually called my bank. Expedia apologized for the problems and said that I just needed to call my bank in the morning.

Prior to calling the bank the next morning, I checked my account again, and it was a negative $400. I was quite surprised, as I did not think this could happen with the new laws. So, I called the bank, and here is what apparently happened:

The hotel that put the $800 and $150 holds that I had extended 2 nights only charged the $150, the first extended night and the second extended night towards my account. They apparently overlooked the $800 charge and did not charge the card and the hold fell off. While booking the hotel on Expedia, 2 days after checking out of said hotel, and after the additional charge of the new hotel for 2 nights, the first hotel apparently realized their\error and submitted the $800 charge to the bank, and although it took the account into a negative balance, the bank paid it.

Now I know untimately, I am responsible for keeping a ledger of my account, and normally I do. But with the stress of the housing situation and all the holds coming on and off the account, it became a bit confusing, and I relied on the banks online system to determine my available balance.

SO my question is, why would the bank pay a charge when the funds are not available, when I have opted out of overdraft protection? Do I have any recourse for them doing so? The bank is also charging me a $7/day fee for my account being in the negative, up to $94. My disability check is not deposited until the 3rd of June, so I will receive the full $94 penalty. The bank stated that the $7/day charge is not an overdraft fee, as their overdraft fee is $36, plus $7/day. I said it sounds to me like an overdraft fee, with a different name. Instead of booking the last hotel room, I would have stayed on a park bench, as I started doing when the account went negative. Now, I am looking at being behind $500. Isn’t this what the new law is supposed to help prevent?

Thanks for any insight you can give.

Readers, what do you think about this situation? Is there any advice you can give to Joseph who is down on luck at the moment?


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2 thoughts on “Reader Question: Regarding the New Laws with Opting Out of Overdraft Protection

  1. Well, technically, the overdraft fee is the fee for honoring an otherwise invalid transaction – separate and distinct from the negative balance charge. Although they usually work in tandem – how would you get to a negative balance without an overdraft?

    It seems that the bank gave Joseph the “benefit” of overdraft protection for “free” (i.e. without the $36 charge).

    This probably violates the opt-out laws, although it’s a weird situation. My guess is that the bank somehow process the transaction and realized after the fact that Joseph had opted out, and thus didn’t charge the overdraft fee? Pure speculation on my part.

    As for recourse … maybe on the negative balance fees, but probably not on the actual charges. If the bank were to reverse those charges, Joseph would then owe those hotels for the stay. While it’s true that he may have opted for a park bench if he had known the situation, the reality of the situation is that he did consume the services of those hotels and is going to have legal liability for the charges. It wouldn’t make sense for the hotels to eat the cost, and I’m struggling to think of a scenario where the bank would be forced to pay those costs.

    That’s just my gut feeling, though.


    Mrs. Accountability Reply:

    @Kosmo @ The Soap Boxers, thanks for your input. Anyone else have an answer for Joseph?


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