Rules put in place by the Federal Reserve give ATM and debit card users more options when it comes to overdrafts. Credit unions, Banks, and other financial organizations must
offer customers the ability to make decisions about overdrafts for transactions made with their ATM or debit cards.
Below are some key things you need to consider when reading the notice:
An overdraft occurs when you make a ATM transaction or purchase but don't have enough funds in your account to cover it. Your bank, credit union, or financial institution will cover you, for a fee, when you
become overdrawn. Every time you overdraw your account, this fee can apply.
Normally, banks or financial institutions can cover your overdrafts in one of two different methods:
1) Overdraft protection plans - Your bank, credit union or financial institution might offer a link to your savings account to cover transactions or a line of credit, when you overdraw your bank account. Banks typically charge a fee each time you overdraw your account, but these overdraft protection plans may be less expensive than their standard overdraft practices.
2) Standard overdraft practices - Your bank, credit union, or financial institution will cover your transaction for a flat fee of about twenty to thirty dollars every time you overdraw your account. For example, if you make a purchase with your debit card for one hundred and fifty dollars but only have one hundred dollars in your account, your account will be overdrawn by fifty dollars and your bank or credit union will charge you a fee. If you then make an ATM withdrawal for fifty dollars, your bank account will be overdrawn by one hundred dollars and you will be charged another fee. In this example, if the fee your bank charges for its standard overdraft practices is thirty dollars, you will pay a total of sixty dollars in fees.
1) You choose - In the past, some banks automatically enrolled you in their standard overdraft practices for all types of transactions when you opened an account. Under the
new rules, your bank must get your permission first, before applying its standard overdraft practices to everyday ATM and debit card transactions before you can be charged overdraft fees. To grant this
permission, you will need to respond to the notice and (agree) opt in.
2) Existing accounts - After August 15, 2010, if you don't opt in, your bank's standard overdraft practices will not apply to your everyday ATM and debit card transactions. These transactions normally will be declined when you do not have enough money in your account, but you will not be charged overdraft fees.
3) New accounts - After July 1, 2010, if you open a new account your bank is not allowed to charge you overdraft fees for everyday transactions made by ATM and debit cards unless you opt in. If you open a new account before July 1, 2010, your bank will treat you as an existing account holder: you will receive a notice about your bank's standard overdraft practices and will have to decide if you want them for everyday ATM and debit card transactions.
4) Flexibility - Whatever your decision maybe, the new overdraft rules give you flexibility. If you don't opt in, you can do so later. If you opt in, you can cancel at any time.
5) Automatic bill payments and Checks - The new rules do not cover automatic bill payments or checks that you may have set up for paying bills such as your rent, mortgage or utilities. Your bank, credit union or other financial institution may still enroll you automatically in their standard overdraft practices for these types of transactions. If you do not want your bank's standard overdraft practices in these instances, talk to your bank; you may or may not have the option to cancel.
For information on protections under the Federal Reserve's other consumer protection rules please visit their website.
Although all information is written in good faith and has been reviewed, please email us at [email protected] to report any inaccuracies.