Two people who spend the same money in the same week can be charged very differently for going overdrawn. The difference lies in how the facility is structured and how transactions are processed.
Arranged and unarranged are separate products
An arranged overdraft is a credit facility agreed in advance up to a limit, assessed like any other borrowing.
Going beyond that limit, or overdrawing without a facility at all, is a different matter entirely: the bank is deciding transaction by transaction whether to pay an item it never committed to.
Historically the second carried far higher charges than the first, and much of the regulatory attention paid to overdrafts has been directed at that gap.
Charges are levied on different bases
Some structures charge daily interest on the amount overdrawn, so the cost tracks both the size of the shortfall and its duration.
Others apply flat fees per day overdrawn or per item paid or returned, and those do not scale with the amount, which makes small overdrafts proportionally expensive.
Where several bases are combined, the total cost of a brief shortfall can be difficult for a customer to anticipate before it occurs.
Processing order changes the outcome
Payments arriving on the same day are not necessarily processed in the order they were made, and the sequence determines when the balance crosses zero.
Processing the largest item first can push an account overdrawn earlier, so several subsequent small payments each attract a charge.
The same transactions in a different order might produce a single charge or none, which is why processing order has been a recurring subject of complaint and regulatory scrutiny.
Timing of credits matters as much as debits
Incoming funds are made available according to the clearing rules for the payment type, and those differ between transfers, cheques and card refunds.
A balance can appear sufficient while the underlying funds have not cleared, and the account goes overdrawn on the day the payment actually lands.
Buffers and grace periods exist at many institutions to absorb this, but their size and the conditions attached to them vary considerably.
Why the structures keep being redesigned
Regulators in several jurisdictions have pressed for simpler pricing, clearer disclosure and closer alignment between arranged and unarranged rates.
Institutions have responded by consolidating charges into single rates, which makes comparison easier while sometimes raising the cost for borrowers who were previously within an arranged limit.
The rules governing all of this differ by jurisdiction and are revised regularly, so the structure applying to any particular account is a matter for its own terms.