Consumers Are Still Confused About Overdraft Rules


NEW YORK (MainStreet) — Consumers are still unclear about overdraft protections four years after laws took effect aimed to curb these fees.

Also See: Banks Still Earn Billions From Overdraft Fees

Overdraft fees are charged when a consumer doesn't have enough money in a checking account to complete a transaction. Since 2010, provisions of the Credit CARD Act of 2009 state that consumers must opt-in for overdraft protection from banks, instead of banks automatically placing consumers in its overdraft protection service. This means a consumer's debit card purchase would be approved, even if there wasn't sufficient funds in the account to complete the transaction, along with an overdraft fee upwards of $35. Should consumers not opt-in for such protection, overdraft purchases would simply be declined and no fee is charged.

According to Pew Research, 52% of consumers who overdrafted, didn't realize they opted in for overdraft protection, and were slammed with fees.

"It can happen to anyone," says Gerri Detweiler, director of consumer education at "It only takes a dollar to overdraft on your account, and then there's a big fee."

When opening up a bank account, you'll be swamped with papers to sign, one of which is an overdraft protection form.

"The form isn't clear about what it means to opt-in," says Susan Weinstock, director of consumer banking at The Pew Charitable Trusts. "You don't have to do anything or fill out any forms to avoid the fees."

To avoid confusion when it comes to overdraft fees, refrain from filling out overdraft opt-in forms. In other words, you don't have to let the bank know you don't want overdraft protection. The legislation from 2010 already implies this.

Should you want overdraft protection, you must opt-in for such protection via the bank's forms. Still, overdrafts happen to the savviest consumers, so opting in puts yourself at risk of getting slammed with fees.

The other nuance when it comes to overdraft fees is how they are charged.

"Some institutions reorder your transactions so the largest ones are first, draining your checking account, causing overdrafts on each of the smaller transactions you've made," Weinstock adds. "If they organized this in chronological order, you may have only been charged one fee, instead of several."

If that doesn't convince you to stay away from overdraft protection, be more vigilant when it comes to your finances. This involves keeping an eye on your checking account.

"Most financial institutions offer text message or email alerts should your bank accounts fall below a certain amount," Detweiler tells MainStreet.

After all, overdraft fees are quite lucrative for banks. According to an April MainStreet report, Moebs Services says banks earned $32 billion in overdraft fees in 2013, down slightly since 2009, the height of the recession.

- Written by Scott Gamm for MainStreet. Gamm is author of MORE MONEY, PLEASE.

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