The Federal Reserve is banning the banks’ ability to charge overdraft fees for automatic payment of ATM or debit charges that put your account in the red. Banks have historically allowed these transactions, charging consumers a hefty overdraft fee—usually about $35—for ATM or debit card charges that caused an account to be withdrawn. But on November 12th, the Federal Reserve banned ATM and debit card overdraft fees unless consumers “opt in” to an overdraft protection program.
This means the banks will simply decline ATM and debit card transactions* that put your account in the red. Your purchase will be refused, but you won’t be charged an overdraft fee.
This new rule will take affect July 1 (yes, in 7 months… why does it always take so long?). If you want the banks to continue paying ATM and debit card transactions that cause your account to be withdrawn, visit a teller at your bank next spring and ask about your overdraft protection options.
And what about those who do not want their bank to cover withdrawals from accounts with insufficient funds? If you fall into this camp, visit your bank now and ask that it stop automatically paying transactions that overdraw your account. While banks are not required to oblige such requests until July 1, banks might be eager to please unhappy customers.
Regardless, prevent overdraft fees by creating a $100 or $200 cushion in your account. Today, make an adjustment to your bank ledger so that your records show that you have $100 or $200 less than you actually have. This will help protect you from overdrafts caused by charges that might have slipped your mind.
* This new law applies to debit card and ATM transactions only. Banks are not banned from providing automatic overdraft coverage of checks and automatic recurring payments.
