Interchange Rate CapThe Durbin Amendment to the Wall Street Reform and Consumer Protection Act permits the government to regulate debit interchange rates. The…
The Federal Reserve in 2010 issued new rules regarding overdraft fees on debit and ATM cards. You can now choose to stop banks from approving single debit transactions and ATM withdrawals when you do not have enough money in your bank account.
An overdraft is when you do not have sufficient funds in your account to cover a payment. As part of their “standard overdraft practices,” many banks will pay the overdraft and charge you an expensive fee, around $35.
Your bank must have your permission before it can charge a fee to cover an overdraft if you do not have enough money in your account to pay for the transaction. It is your choice whether or not to enroll in your bank’s “standard overdraft practices” program.
Giving your bank permission to pay overdrafts on debit card transactions and ATM withdrawals and to charge you a fee for doing so is called “opting in” to your bank’s “standard overdraft practices.” If you have a joint account, only one holder’s agreement to opt in for overdraft protection is required. If you opted in at one time but later change your mind, you can opt back out anytime—just call your bank.
If you do not opt in to bank’s “standard overdraft practices,” and you do not have enough money in your bank account, debit transactions, ATM withdrawals and point of sale transactions will be denied. But you won’t be charged overdraft fees.
The “standard overdraft practices” rules do not apply to checks and automatic bill payments. With or without your opt in, banks can charge overdraft fees for bounced checks or recurring debits, when your account contains insufficient funds. It’s important to know that you can pay more than one bounced check (or overdraft) fee in one day, as the fees are charged “per item” meaning that each debit or check that bounces incurs a fee. This could add up to more than $100 per day depending on the circumstances.
Also not covered by the opt-in are “recurring” debits that you have set up to allow companies to take money from your account. This means that if you establish an automatic bill payment through “online banking” and a payment is sent when you don’t have enough to cover it, the transaction will “bounce” and you’ll be charged an overdraft fee.
It’s important to remember that opting in to payment of one-time debit and ATM withdrawal overdrafts does not mean that you will be given an affordable repayment schedule. The money that the bank advanced, as well as overdraft fees, must be paid in a few days, or you may be charged another fee. Any money you owe will be taken from your account by the bank when your next deposit is made.
You may be able to avoid overdraft fees by enrolling in a separate program at your bank. When you enroll, the bank will pay your overdrafts by lending you money on a “line of credit” or by transferring money from your savings account. The first option–credit-based overdraft protection—requires that you have a good credit history. The savings-based program requires that you have enough money in your savings to cover overdrafts. Both will charge a small transaction fee—but you will not pay bounced check fees or overdraft fees. Ask your bank for more information.