The New Overdraft Law: What Does It Mean for You?

The New Overdraft Law: What Does It Mean for You?

Summer isn’t the only thing that’s just begun: July 1st marks the implementation of new overdraft laws at banks across the country. While the idea of an overdraft policy can be overwhelming, the new policy might very well be in our favor.

Overdraft Fees Happen When We Can’t Cover a Charge

An overdraft fee is what a bank charges us when we make an A.T.M. withdrawal or pay with a debit card, but don’t have enough money in our account to cover the charges. The bank spots us the money at the moment, charging us an overdraft fee for the favor and putting a balance—a deficit—on our account. Until now, banks enrolled us for overdraft procedures automatically.

The New Law Requires Express Permission

The new law states that banks must have our express permission before enrolling us in any type of overdraft plan. If we deny permission, they won’t cover us when the A.T.M. reads “insufficient funds.” The default setting is now no overdraft coverage, and if banks don’t hear differently (from us!) by August 15th, 2010, attempted transactions with insufficient funds will be declined—instead of going through at a great expense to us. The same goes for those of us opening accounts after July 1: we must opt in to have banks cover our overdrafts.

“Most people overdraw their accounts by accident,” says Lauren Lyons Cole, LearnVest’s Financial Planner in Residence. “I recommend sticking with the automatic opt-out of overdraft coverage. It’s a lot better to suffer the temporary embarrassment of having your card declined than to pay $39 to your bank.”

Note that the new policy only affects debit card and A.T.M. transactions—not checks or automatic bill payments, for which the bank can still enroll us in its usual overdraft practices by default.

We Will Opt Out, and You Should Too

An overdraft means that we are spending money that we don’t have, and that is something that is never acceptable. There’s no reason to let the bank charge us for money we never had in the first place, or to pay for protection from those fees. Instead, we will stick to spending only money that we do have, and opt out of overdraft procedures.

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