What do the Bank Overdraft Notices and Requests You are Receiving From Your Bank Really Mean

Consumers are being flooded with notifications from their banks, due to new banking regulations that take effect on August 15, 2010.

Simple explanation: Ignore all of it! Don’t do anything and do not sign up for the overdraft coverage that your bank may be offering.

Now the details:

The new rules apply to the use of ATM and debit cards, when being used for purchases. If you don’t use a debit card or ATM card for purchases, none of these changes will affect you and you can ignore the emails and notices that you have been receiving.

If you do use an ATM or debit card for purchases, we’ll explain the new rules. The key is to maintain adequate balances in your bank account and not to incur an overdraft, as the fees are ridiculously high (ranging from $25-$35 per transaction). As of August 15, banks will no longer be able to approve a debit card “overdraft,” without your consent (that is what they are contacting you for, your consent for their new overdraft program).

What this means is that if you don’t accept the offer they are requesting you to “opt-in” for, your debit card will be rejected when you attempt to make your store purchase, if your bank account does not have adequate funds.

What the banks are sending to their customers now is to request that you opt-in for the new overdraft rules. If you opt-in, they have the discretion (not guaranteed) to approve your store purchase, even though you may not have adequate funds in your bank account. By opting in, they may approve the transaction and then charge a fee, which could be $25-$35, per transaction, per day. There are ways these fees quickly escalate every day, unless additional funds are quickly added to the bank account.

We strongly recommend that you DO NOT opt in for the new ATM/debit card overdraft coverage (by doing nothing, you are effectively doing exactly this). If you do not have adequate funds in your bank account when you are attempting to make a store purchase with your debit card, you are far better off to have the transaction rejected, and then pay by some other form, then have the transaction approved and incur the bank fee. The initial fee (and subsequent fees that can accumulate) are likely to be much larger than the amount of the intended purchase.

We recommend that readers review this with their children and grandchildren, who may be frequent debit/ATM card users, for purchases. They may be more likely to use these cards, and more likely to opt-in, based on their bank’s marketing materials.

Source: FDIC website and Consumer Federation of America press release, dated 6/29/10

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