Loan Payments, Fees, & Overdraft Protection

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Question:

When the bank is using an Overdraft Protection product, is there a reg that says: 1. We cannot overdraw a person's account for the loan payment? 2. We cannot charge a fee if the account is overdrawn because of the loan payment?

Answer:

I am not aware of any rule preventing you from doing this. Some might question the wisdom of paying down one debt by creating another, however. You'd potentially be "aging" the status of the line by applying this phantom payment, which would only recycle through the overdraft back to the line. By doing so, you might be camouflaging a potential problem.

First published on BankersOnline.com 10/7/02