Sunday is overdraft day, the deadline for consumers to choose whether they want ATM and debit-card transactions rejected if their account is without enough money or are willing to stomach a sizable fee in lieu of any embarrassment.
Banks for months have pressed customers to decide — most of the literature demonstrably points toward opting in for the overdraft service — in order to comply with new federal regulations.
And if you gamble and forget to opt in or out of the protection — which isn’t really protection at all but an agreement to pay a fee, sometimes as much as $40, for spending more than you have — then the law, known as Regulation E, requires banks to exclude you automatically.
That means that sometime Sunday — no one is really certain when it kicks in, but by Monday for sure — you could present your ATM card for cash, or your debit card for a purchase, and have to walk away empty-handed.
“If my debit card declines me because I don’t have enough money in my account, then I don’t need to be spending that money in the first place,” said Jonathan Marcy, 20, a college student from Arvada.
If you already have overdraft protection in place on a checking account, there’s no change to your account, even if you use an ATM or debit card, though experts say you should check with your institution to be sure.
Overdrafts are big money for banks, which last year raked in more than $37 billion in fees, about half of that from debit-card and ATM overdrafts. Banks are saying customers who opt out could risk embarrassment.
“You may find yourself in line at the grocery store or gas station with no way to pay,” one bank brochure warns.
The new law requires consumers to choose before a bank is allowed to charge them for clearing a transaction involving insufficient funds. And many consumers want the coverage — even if it means the fee is much higher than the overdraft itself.
“It is disturbing that this many people live so close to the financial edge,” said Gail Cunningham, whose National Foundation for Credit Counseling found that 26 percent of respondents to a poll wanted the coverage. Locally, banks say they’re seeing an 80 percent opt-in rate.
“Anticipating that they will overdraw their account, they are willing to exacerbate the problem by paying a fee to have their purchases approved,” Cunningham said.
Such fees can add up quickly. The industry average is $27. Some banks, such as Wells Fargo, will charge the fee no more than four times in a day. In Wells Fargo’s case, the fee is $35 per instance, spokeswoman Cristie Drumm said.
The fee to transfer funds as part of already- in-place overdraft protection? Just $12 at some banks.
“There are times I have unexpected expenses, and I’m happy to pay for the protection,” said Heather Salazar, 37, of Thornton. “It’s great to offer people the choice that’s best for them.”
David Migoya: 303-954-1506 or dmigoya@denverpost.com
Overdraft protection Q & A
New federal rules kick in Sunday requiring consumers to opt in to receive overdraft services for ATM and debit-card transactions. Some frequently asked questions:
Q: Is overdraft protection the same as overdraft coverage?
A: No. Overdraft protection relies on an alternative money source — a savings account, credit card or line of credit — to automatically cover overspending, usually on a checking account. Overdraft coverage is a bank service that covers your excess for a fee.
Q: Are the fees the same for each?
A: No. Overdraft-protection fees are usually less expensive — sometimes by three times — than overdraft coverage.
Q: What if I already have overdraft protection? Am I still affected?
A: Sort of. ATM and debit-card transactions tied to an account with overdraft protection are not affected by the regulation to the extent of the coverage. That is, when the account used to pay overdrafts runs out of money, or they exceed the amount of your line of credit, then opt-in/opt- out kicks in — and if you’ve opted out, your transaction is rejected.
Q: Can I protect myself from overdrafts?
A: Yes. Many banks offer text messaging when your account balance is running dangerously low, helping you avoid overdrafts.
Q: Are all ATM/debit transactions affected?
A: No. Only point-of-sale and ATM transactions. Recurring charges, such as automatic bill payments, are not affected.
Q: Is my checking account affected by my choice?
A: Opting in does not guarantee that you won’t bounce a check. Check with your bank.
