Changes in Overdraft Protection – Get Ready

Bank fees, particularly overdraft fees can deplete a customer’s bank account. In the past, a customer could be enrolled in automatic overdraft protection by their bank. There was no upfront fee, banks charged overdraft fees to accounts with insufficient funds resulting from a debit card or ATM transaction. A law was passed to protect consumers from banks automatically enrolling then in overdraft protection.

NFCC (National Foundation for Credit Counseling) conducted an online poll (July 2010) asking if consumers planned to opt-in for overdraft protection. Twenty-six percent of their 2,089 respondents said yes for overdraft protection and the remaining 74% said no.

Law Changes for Automatic Overdraft Protection

New Federal Reserve rules (beginning on July 1, 2010); give consumers the decision to opt-in for overdraft protection. The new rules for debit and ATM purchases are: only customers who opt-in will be enrolled in automatic overdraft protection; customers with existing accounts must choose to opt-in (beginning August 15, 2010); new accounts opened on or after July 1, 2010 must choose to opt-in; a customer can cancel any time after opting-in; and checks and automatic bill paying may still be enrolled in a bank’s automatic overdraft protection. Check with the bank about these overdraft options.

Automatic Overdraft Protection

Overcharges incurred on debit and ATM transactions would be covered If a customer had automatic overdraft protection. The initial service was free but a fee (between $27 and $35) was assessed for every transaction that left the account with a negative balance and added up quickly.

If a customer had two occurrences, of overdrawing their bank account, and spent a total of $25 during two separate transactions, the total amount would be $95 (overdrawn amount $25 plus $35 x two occurrences). Additionally, if the merchant’s financial institution attempted to make repeated requests for the funds, the fees could increase exponentially. What started out as a negative balance of $25 could run in the hundreds of dollars in a short period of time. The overdraft fees were a high price to pay to save embarrassment at the cash

Tips for Avoiding Overdraft Fees

Ways to avoid incurring overdraft fees are:

  • not opting in for automatic overdraft protection
  • keeping extra money in a checking account
  • linking a savings account to a checking account (as a backup for insufficient funds in a checking account)
  • being vigilant by keeping track of all transactions with balances
  • signing up for email alerts for low account balances
  • changing bill due dates to coincide with pay weeks

Managing Debt Better

Consumers can learn how to manage debt by visiting NFCC’s Debt Advice website or calling 800-388-2227 (for assistance in Spanish) 800-682-9832. Quality financial education and counseling services are available to those seeking credit counseling. Consumers have access to bankruptcy counseling, consumer alerts, consumer tools, housing counseling, locating counselors, and information on national initiatives.