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Debit and ATM Cards Subject to Overdraft Regulations

Consumer complaints about spiraling bank overdraft fees helped to spur a change in government banking regulations regarding debit and ATM cards. These regulations went into effect on August 15, 2010 and impact more than 500 million debit cards in circulation in the United States.

Q:   How did the legislation change the way banks handle overdrafts?
A: 
Before the 2010 regulations went into effect, banks generally covered insufficient funds automatically and charged their customers overdraft fees of up to $39 per transaction. If a customer continued to operate with insufficient funds, the bank would decline transactions and close the account, but often not before the customer experienced some real financial damage as a result of having to pay overdraft fees.

Under the current regulations, overdraft coverage is not automatic. Consumers must specifically “opt in” if they want the bank to cover any overdrafts.

Q:  I’m a consumer.  What must I do under the current regulations about overdraft coverage?
A:
 Under the new rules, you must let the bank know if you want the bank to cover any ATM withdrawals or debit card purchases that would cause an overdraft. If you do not “opt-in” for overdraft coverage, the bank will decline your purchase or deny the ATM withdrawal. While this may save you from being charged costly overdraft fees, it also may cause embarrassment at a checkout-line. If you do choose to opt-in to receive overdraft coverage, the bank is allowed to charge you its customary rate for that coverage. Contact your bank to find out about any limits on overdraft charges.  

You should consider how you want the bank to handle your overdrafts, and respond quickly to written disclosures you may receive from the bank regarding overdraft coverage.
 
Q:  Are there other ways I can get overdraft protection?
A:
 Yes. Some banks offer a line-of-credit or allow you to link your savings account to your checking account to cover overdrafts. Although there may be a cost for these services, it can be less expensive than standard overdraft practices.

Q:   Do banks provide overdraft coverage for automatic payments under the current regulations?
A:
 It is important to note that the current rules do not cover automatic payments that consumers may have set up for paying bills such as a mortgage, rent, or utilities. Any of these payments that result in an overdraft will be subject to the particular bank’s policies. It is wise to contact your bank about its policy regarding automatic payment overdrafts. 

Q:  How can I best avoid overdraft charges?
A:
 You need to become a smart money manager and stay on top of your checking account transactions. Too many consumers, even those with sufficient income, are poor managers and this problem is costly. Just one overdraft per month can add up to $468 a year in fees ($39 x 12). Keeping your account balanced, using either the monthly statement or on-line access, can help eliminate overdraft problems. The following tips can help you eliminate overdraft fees.
• Remember that your true account balance is in your check register, not on your ATM slip.
• Keep track of all deposits, withdrawal slips and purchase receipts and record them in your check register.
• Know your checking account balance before you make a debit card purchase or ATM withdrawal.
• Balance your account at least once a month.
• Consider putting “ghost” funds of a few hundred dollars in your checking account without recording it in your register (but don’t forget to account for the ghost funds when you balance your account). Talk to your bank representative about how you can avoid all potential overdraft situations.

4/23/2013

This “Law You Can Use” column was provided by the Ohio State Bar Association (OSBA). It was otiginally prepared by Richard S. Korn, formerly of the National Affairs Group, Apprisen Financial Advocates/Consumer Credit Counseling in Columbus. It was updated by Kathy Virgallito of Apprisen.​​

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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