Employers Now Liable for Overdraft Charges Under Iowa Law

Beginning July 1, 2007, employers are liable for overdraft charges incurred by employees when direct deposits are not transferred to the employees’ accounts on or by the regular payday. The overdraft charges may be the basis of a claim under Iowa Code section 91A.10 and for damages under section 91A.8. There is the potential for "liquidated damages" and the employee may also recover attorney fees.  This change will not take a bank off the hook for any errors or delays in its role in receiving a direct deposit.  It is likely that if an employee makes a claim against an employer for failure to deposit funds, the employer may turn to the bank for indemnification if the error was attributable to the bank.  Therefore, banks should be sure their direct deposit process adequately protects against any delays or errors that could be attributable to the bank.