What’s your status when it comes to overdraft coverage?

The Consumer Financial Protection Bureau is issuing a consumer advisory today on overdraft coverage and fees. Have you opted in for debit and ATM overdraft coverage and fees on your checking account? The CFPB wants you to know your options.

Many banks and credit unions offer different types of overdraft coverage when you overdraw your checking account using a check or online bill payment. This coverage can allow you to pay bills, make payments, or withdraw funds even when your account doesn’t have the money to cover the transaction. Overdraft fees can add up, and these short-term cash advances can be costly.

For most banks, the overdraft fee is a fixed amount regardless of the amount of the transaction. You can incur several overdraft fees in a single day. This means that your $4 cup of coffee can end up costing you $35 and a small pack of gum can cost you another $35 all in the same day. That can be more than some consumers can bear.

Many financial institutions also charge an additional extended overdraft fee if you fail to repay the shortfall within a few days.

Institutions can’t charge you for overdrafts on ATM or point-of-sale debit card transactions unless you have opted in. Knowing your status allows you to decide what is best for you. You can choose not to have debit overdraft, and there are steps you can take to reduce or eliminate overdraft fees. Here are some options to consider:

Change your mind?

You can change your overdraft decision at any time. Just let your financial institution know.

Make your choice on one-time debit and ATM overdraft coverage. If you previously opted-in to overdraft coverage for one-time debit card or ATM transactions, you can change your mind and opt out. This means that your debit or ATM card will be declined if you don’t have enough money in your account to cover a purchase or ATM withdrawal. However, it also means you won’t incur fees on these transactions.
Link your checking account to a savings account. If you overdraw your checking account, money will be taken from your linked savings account to cover the difference. You may be charged a transfer fee when this happens, but it is usually much lower than the fee for an overdraft.
Ask your financial institution if you’re eligible for a line of credit or linked credit card to cover overdrafts. You may have to pay a fee when the credit line is tapped, and you will owe interest on the amount you borrowed, but this is still a much cheaper way to cover a brief cash shortfall.
Track your balance as carefully as you can and sign up for low balance alerts to let you know when you are at risk of overdrawing your account. If you have regular electronic transfers, such as rent, mortgage payments or utility bills, make sure you know how much they will be and on what day they occur. You also need to know when the funds you have deposited become available for your use. That way you can ensure you have enough money in your account.

Chris Kilian

In the comments above regarding steps to take to reduce overdraft fees the article says:

“If you previously opted-in to overdraft coverage for one-time debit card or ATM transactions, you can change your mind and opt out. This means that your debit or ATM card will be declined if you don’t have enough money in your account to cover a purchase or ATM withdrawal. However, it also means you won’t incur fees on these transactions.”

This is not entirely true: If you don’t opt-in, or you did and have opted-out a bank does not HAVE to decline your transaction if you don’t have enough money – although this is what will happen most of the time. A bank can still pay your debit card or ATM transaction; they just can’t charge you a fee for it. Depending on who you bank with, there are some banks that are doing this as part of their customer service, or because of certain limitations in their processing systems.
srmrktng

Chris, you are beginning to sound like a lawyer. The statement is entirely true, unless you can name a bank with a policy to waive all one-time debit card overdraft fees for their customers/members.

Just Wonderful

Chris is correct that the statement is not entirely true, for the reasons Chris explained. Your response sounds like you didn’t read their post or do not understand the regulation.

As Chris stated, some Banks will pay the one-time debit card or ATM transaction and not charge as a customer service. I can not name any Banks that do off hand, but I have heard that there are some and normally they are small community Banks.

Also, if a merchant requests an authorization for a purchase at less than the full purchase price (such as a gas station) and the Bank approves the transaction, when the transaction is presented for settlement at a higher transaction amount, the Bank can not then decline that transaction. And if the customer did not opt-in to allowing the Bank to charge for one-time debit card transactions, they can not charge an overdraft fee. So this is a case when the transaction is not declined and the customer is not charged an overdraft fee, and the Bank does not need to have a policy to waive all one-time debit card overdraft fees for their customers/members.

Chris, you don’t sound like a lawyer, you sound like someone who wants to make sure others are not confused by what the regulations actually say. The blog made it sound like the Bank had to decline the transaction when the customer doesn’t have enough money in their account, and like you said that is not true, the Bank is just not allowed to charge an overdraft fee for the transaction if they did not opt-in or later opt-out of allowing the Bank to charge a fee for one-time debit card or ATM transactions.

The CFPB blog aims to facilitate conversations about our work. We want your comments to drive this conversation. Please be courteous, constructive, and on-topic. To help make the conversation productive, we encourage you to read our comment policy before posting. Comments on any post remain open for seven days from the date it was posted.