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

Libby Kane

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.

  • Fiona

    I'm so glad that this is finally happening! The whole idea of overdraft seems so ridiculous to me…it seems so contrary to the point of a debit card.

  • Billyjoebigdaddy

    amen to this new law. My bank just a month ago charged me $140 in overdraft fees because I had made a mistake in my math by $20. I made 4 transactions one day for less than $4 each and they charged me $35 each. Don't do me any favors. Opt out for me!!!!!!!!!!!!!!!!!!!!

  • Jim

    Here’s an interesting situation that just happened to me. I purchased 2 items online at websites. A hold was placed against my available funds for the amounts of the internet purchases. I also ordered a pizza and paid with my debit card. Well, I added a tip to the pizza and I forgot to add that amount into my bank balance throwing it off. nnSeveral days pass and I receive the items I ordered over the internet. I also log into my bank website to check my balance and I expect to see 1.98 available balance. To my surprise, I have 281.23 available. I suddenly remember the TIP I left the Pizza delivery guy and that I forgot to record… nnI realize what happened, Since I tipped the pizza guy, I overdrew my account BUT rather than get a $39 overdraft fee and allowing all my pending transaction to go through, my bank DECLINED one of my online transactions! It was the largest one of the 3 purchases I made. nnNow remember I already RECEIVED the goods I ordered online, they arrived in the mail last week but my bank declined the transaction AFTER the goods were shipped to me. Now I have the Goods and the $$$$ because rather than processing the debit card transaction they declined it. nnWhat happens now? Do I get in trouble for fraud? Should the bank have honored the transaction and pushed it through since they had a pre-authorization for the amount in question but when the pizza authorization was increased by $5 it caused my account to come up short of enough to pay the merchant so they DECLINED the transaction even after the company had an authorization from my bank and shipped the goods out to me.