As you may have heard on the news, the Federal Reserve released new rules restricting overdraft fees yesterday. Unfortunately, the rules aren’t quite as comprehensive as we would probably like. Congress is considering even stronger regulations, but there’s no telling when or if they will be passed. Here’s what you need to know about the current rules.

When Do the Overdraft Fee Rules Apply?
As with all Federal Reserve rules, there’s a lengthy waiting period for the new rules. They don’t take effect until July 1, so you can be sure the banks will be doing everything they can to maximize their overdraft fees in the meantime. Be extra vigilant and take steps to avoid overdraft protection in the first place.

Which Overdraft Fees Are Restricted?
Under the new rules, overdraft fees will still be fully permitted as an opt-out program for bounced checks and online bill pay. Overdraft fees will be made opt-in for ATM withdrawals and one-time debit card transactions/purchases.

What Does Opt-In Mean?
Currently, most banks automatically enroll their customers in overdraft protection. They claim it’s for your “convenience” so your purchases aren’t denied. Most customers say they’d prefer to have their purchases denied rather than pay an exorbitant fee so they can buy a pack of gum.

Under the new rules, all banks will have to ask their customers if they want overdraft protection for ATM and debit card transactions by July 1, 2010. If you don’t say yes, then they have to disenroll you from the protection. But watch your bank communications carefully – I’m sure they’ll try something squirrelly to get you to opt-in without you realizing what they’re doing.

What Should You Do?
Overdraft protection is a personal choice. My choice is not to have it – I’d rather manage my money myself. If you feel the same way, call your bank right now and ask to opt-out of all overdraft protection programs. Your payment will bounce or your purchase will be denied if you go over the limit, but it’s probably still cheaper than the overdraft fee. If they call or write to ask you if you want to opt-in to overdraft protection, say no and then also ask to opt-out of all other overdraft protection programs.

How Did This Problem Get So Bad?
In a word, profit. The banks rake in billions in overdraft fees every year, so they opted-in all their customers without their knowledge. In addition, they sort all of your deposits and payments in a manner that maximizes the bank’s potential for fees through bounced checks and overdrafts. As the economy slid and their other profit lines declined, they ramped up the fees.

Last month they attempted to head off the new rules by reducing their fees slightly, but it didn’t work. You’ve no doubt seen or experienced all the credit card shenanigans the banks have pulled ahead of the new credit card rules. Be just as vigilant when it comes to your bank accounts because the banks are not on your side.


6 Responses to “The New Overdraft Fee Rules”

  1. Amy on November 13th, 2009 9:25 am

    I am with a credit union which notified us of the overdraft protection well in advance. I decided to let them set it up. I have only had the occasion to use it one time and it cost me $.01. They treat it like a loan and since I check my balances often, I was able to transfer the money back within a day or so and had only accrued one cent in interest. There were no other fees. So, I am ok with that.

  2. Stephen on November 13th, 2009 9:51 am

    I think this is the correct way

  3. Aryn on November 13th, 2009 10:16 am

    Amy, switching to a credit union is a good option I didn’t even think of! Since they’re non-profits, they don’t collect ridiculous fees or find ways to take advantage of their members.

    Sigh, if only there were a non-profit airline…

  4. Dillian on August 11th, 2014 8:56 pm

    You’ve captured this pertlcfey. Thanks for taking the time!

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    Hi Brittany: I am looking to share a room also. I alaredy have a room reserved for Thursday and Friday and would be open to sharing it with you. Let me know. Thank you, Annie

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