Short answer: if a lender tries to take a payment and your account does not have enough money, you can be charged twice: a late fee and a returned payment fee by the lender, and an NSF fee by your bank or credit union, or an overdraft fee if the bank covers it, depending on state law and your loan agreement (CFPB). Each new attempt can bring another bank fee. Read your loan agreement for its fees, and act before the next attempt.
Who can charge what
| Who | Fee | When |
|---|---|---|
| Your lender | Late fee and returned payment fee | When the payment fails, as your loan agreement and state law allow (CFPB) |
| Your bank or credit union | NSF (bounced payment) fee | When it refuses the payment (CFPB) |
| Your bank or credit union | Overdraft fee | When it pays the debit anyway and your balance goes negative (CFPB); see overdraft fees vs a small loan |
How repeated attempts add up
Example, not a quote, with example fee amounts: a lender tries the same payment 3 times and each attempt fails, at a $30.00 bank fee each, then charges its own fees:
| Step | What happens | Fee |
|---|---|---|
| Attempt 1 | Fails, not enough money | $30.00 |
| Attempt 2 | Fails, not enough money | $30.00 |
| Attempt 3 | Fails, not enough money | $30.00 |
| Lender | Returned payment fee and late fee | $40.00 |
Total in fees: $130.00, and the payment is still due. Your bank's and lender's real fees are in your account and loan agreements.
This happens in practice. In a CFPB study of online lenders' debits over 18 months, half of the accounts had at least one payment request that overdrew the account or failed for lack of funds; those accounts paid an average of $185 in overdraft and NSF fees to their bank. About $50 of that came from lenders sending a payment again after it had failed, and about $39 from several requests sent on one day (CFPB 2016).
A federal limit on retries, for certain loans
For loans covered by the CFPB's rule on payday, vehicle title and certain high-cost installment loans, a lender must not try again to take a payment from your account after two consecutive attempts failed for lack of funds, unless you give a new authorization (12 CFR 1041.8(b), (c)). Covered loans include those due within 45 days, and some longer loans with a balloon payment or a cost of credit over 36% a year plus access to your account (12 CFR 1041.3(b)). Many personal loans are not covered, so check your loan agreement.
What to do
- Before the due date, if you know the money will not be there, call the lender, ask for a new date or a payment plan, and ask it not to attempt the debit; get the answer in writing.
- To stop the debits, revoke the authorization and give your bank a stop payment order in time; see how to stop automatic loan payments. You still owe the payment.
- Ask the lender for a payment history and your loan file to see each fee and how payments were applied (CFPB).
- For what a missed payment does to your credit and late fees, see what happens if you miss a loan payment.
- If a lender keeps charging fees you think it should not, contact your state regulator or attorney general, or file a complaint (CFPB).
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.
Sources
- CFPB: Why did my payday lender charge me a late fee or a non-sufficient funds (NSF) fee?
- CFPB: Online Payday Loan Payments (report, April 2016, PDF)
- 12 CFR 1041.8: Prohibited payment transfer attempts (payday, vehicle title and certain high-cost installment loans)
- 12 CFR 1041.3: Scope of coverage (covered loans)