Bounced Check Protection
Bounced check protection is a dangerous alternative to payday loans.
It is a form of overdraft protection.
Unlike an overdraft line of credit, however, bounced check protection is expensive and carries risks…
In overdraft credit:
- you sign up for the plan
- you must meet certain creditworthiness standard
- you specify where insufficient funds will come from (savings account or credit card)
- in the event of a bounced check, the insufficient funds will be drawn from your specified location
In bounced check protection:
- you do not sign up (many banks automatically enroll checking account users)
- banks do not consider creditworthiness
- you do not specify where insufficient funds will come from (if the bank decides to cover the check, the funds will come from the bank but they won’t come cheap)
- in the event of a bounced check, depending on the amount, the bank may cover it
- the bank may apply a NSF fee, daily interest fee or other penalties
Bounced check protection has risks:
- the fees, interest and penalties may add up to be more expensive than even a payday loan
- the bank may decide not to cover your check (the check will bounce leading to more fees from your bank, your creditor and your creditor’s bank)
In effect, this ‘protection’ is a short-term, high interest ‘loan’ from your bank.
Unlike traditional overdraft line of credit protection, the bank may decide not to cover your check and let it bounce. Since banks arbitrarily choose whether or not to cover you, this ‘protection’ is not considered a loan so Truth in Lending laws do not apply. The bank is not required to disclose total loan cost, APR, etc.
In some cases, this overdraft ‘protection’ (or should we say overdraft profiteering?) will cost you more than even a payday loan!
Whenever possible, avoid bounced check protection and always consider cheaper alternatives.
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