Plagued by overdraft fees because you forgot how much money was in your account before you decided to pay your bills? Well there is help, sort of, on the way. There has been an amendment to Regulation E, the regulations that administer the rules that pertain to overdraft charges and protection.
Most important to remember is what banking transactions the new laws apply to and which transactions they do not. The new law does apply only to ATM transactions and one time debit card transactions (i.e. paying for your groceries with a debit card). The new law does NOT apply to checks written against your account, nor to recurring, typically monthly, charges such as for your car or mortgage.
Currently, if one uses more money than is in the account, the bank has the discretion to permit those charges to hit the account and the account owner is then assessed an overdraft charge of say $35. Now, for example, if 10 checks hit the account after it goes negative, the bank can assess $350 (10x$35) in overdraft charges. As stated above, writing checks or having monthly recurring charges can still result in these multiple overdraft fees.
Now there are new procedures for ATM or one time debit card transactions that can prevent those multiple overdraft fees. Here is how it works. Let’s say you’re pulling $300 out from your ATM. But by doing that it causes your balance to go negative.
If prior to that withdrawal you had told your bank that you did not want to “Opt-In” or affirmatively consent, to the institution’s overdraft service for ATM and one-time debit card transactions, then no overdraft charges would be assessed. One small thing, your request to withdraw $300 from your ATM would also be denied. The bank is not going to let you overdraw your account if they can’t assess charges. This same procedure applies if you were trying to pay your groceries and used your debit card. If by doing that your account would go negative, the bank would deny the withdrawal and no overdraft charge would be assessed.
Now if you chose to “Opt-In”, then the same rules apply as before and you’re subject to multiple overdraft charges as before.
How best to avoid overdraft charges? One should establish an overdraft protection account to be used when you inadvertently go negative. This way your withdrawal goes through on the ATM and you incur no overdraft charges. That is, of course, as long as you don’t blow through your overdraft coverage.
The mandatory compliance date is August 15, 2010 for existing banking customers to declare they want to “Opt-In” and July 1st, 2010 for new bank customers to declare if they want to embrace these new overdraft laws.
So at the end of the day, it is a lot of confusion with a little bit of consumer protection.
1) Don’t take out more money from your account than what you have — this isn’t rocket science, just pay attention.
2) Don’t Opt-In — Yes you could incur bounce check charges, but ATMs are for emergencies and you don’t want that option closed off.
3) Get Overdraft Protection — This way should you slip the bank is there to catch you and you can avoid bounce check charges.