This summer, a host of new rules kick in regarding the way banks charge overdraft fees to their customers. As two critical deadlines approach, many consumers are receiving letters from their banks asking them to either “opt-in” or “opt-out” of overdraft protection services (and the accompanying fees) when they overdraw their accounts.
The new regulations are the result of comprehensive banking reform measures, and are primarily aimed at curbing overdraft fees. Banks are now required to let their customers decide whether they want their bank to “cover” ATM and one-time debit card transactions when there is not enough money in the account. Such service can help you avoid the potential problems caused by bouncing a check, but can also be costly as many banks charge fees of $30 or more for each transaction.
The new rules require banks to obtain explicit permission from their customers to provide this service. Over the past several weeks, consumers have been sent questionnaires from their banks, asking their preference on whether they want the bank to either cover their overdrafts (and incurring the bank’s stated fees), or waive the service and possibly have the transactions bounce. (If a consumer “opts out”, the bank may cover the transaction anyway, but may no longer charge for it.) The deadline for banks to implement the opt-in process for new customers is July 1, and Aug. 15 for existing customers.
It is important for consumers to weigh their options, because a lot of consumers could be positively or negatively affected by their decisions.
For example, a customer who meticulously keeps his or her checkbook and never overdraws would probably not need the service. Same goes for customers who have some other way to cover overdrafts, such as a linked bank account or line of credit. “But customers who regularly run into problems balancing their checkbook, or those who live on a tight margin, should consider whether they would benefit from the service.
It is important to note that the new rules only apply to “one-time” debit card and ATM transactions, and do not apply to checks, ACH (Automated Clearing House) transactions, such as scheduled payments using the bank’s bill-payer service, or recurring debit card transactions.
A key factor in the decision is whether you want to deal with the bank or with the person or business which is the subject of the bounced transaction. Fees vary, and many businesses charge up the maximum allowed by law. Others may allow you a second chance if you contact them to plead your case. If you have opted out, and try to use your debit card at a store or ATM, it will likely be declined.
Customers should also know that banks are allowed to charge you as many times per day as their stated policy allows, potentially costing much more than you paid for the product or service. That dollar pack of chewing gum could end up costing you $35 or more.
Whatever your choice, banks will automatically consider you to have “opted out” if you do not return the form with your choice by the deadline.
Here are a few suggestions for avoiding overdrafts:
- Track your balances daily. Many banks have websites that allow you to see what is going through the account, minute-by-minute.
- Consider signing up for “low-balance” alerts. These services can let you know about a potential problem.
- Keep a “cushion” of cash in your account, for times when you need it, or when you make a mistake.
- Link your account to a savings account or line of credit.
The BBB urges consumers to contact their banks for more information about their choice. For more on the new law, the American Bankers Association has produced an informative fact sheet on its website at http://bit.ly/9qkVAZ.