The New York State Consumer Protection Board (CPB) is alerting consumers to new options that are available regarding overdrafts charges for transactions made with debit and ATM cards.
Many banks have automatically provided overdraft coverage to consumers who make ATM withdrawals or one-time debit card transactions that cause their accounts to be overdrawn. However, such coverage often incurs a fee of $35 or more. As a result, Americans paid an estimated $38 billion in overdraft fees in 2009.
New Federal Reserve rules prohibit financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or “opts in,” to the overdraft service for those types of transactions.
Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. If a consumer does not opt in for overdraft service, everyday debit card and ATM transactions will be declined if there are insufficient funds in the account. However, no overdraft fee will be charged.
The new rules do not apply to checks or automatic bill payments that consumers set up to pay bills such as mortgage, rent, or utilities. Banks may still automatically enroll consumers in overdraft coverage for these types of transactions.
The rules applied to new accounts as of July 1, and took effect for existing accounts on Sunday, August 15.
Consumers who elect not to have overdraft protection may have other, cheaper options. Some banks offer customers a line of credit or a link to their savings account to cover transactions that overdraw an account. Banks typically charge a fee each time an account is overdrawn, but these overdraft protection plans are generally less expensive than standard overdraft practices.
The CPB urges consumers to carefully read the notices from financial institutions about their new overdraft policies and pay close attention to the fee scale. If you opt in for standard overdraft protection, financial institutions can still assess multiple overdraft fees each banking day and continue to reorder transactions to generate more opportunities to assess overdraft fees.
Information about the new debit and ATM card rules from the Federal Reserve is available at www.federalreserve.gov/consumerinfo/wyntk_overdraft.htm. New Yorkers are also welcome to check out the CPB’s new web site at www.nysconsumer.gov for debit, banking and credit-related resources. An educated consumer is an empowered consumer!
Mindy A. Bockstein is the Chairperson and Executive Director of the New York State Consumer Protection Board