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New Rules for Overdrafts Coming Soon

On August 15th the Federal Reserve’s rules regarding overdraft protection on debit and ATM transactions go into effect. Under the new law, banks, credit unions and other financial institutions must offer you the ability to make decisions about overdrafts for transactions made with your debit or ATM card.

As of August 15, 2010, the banks and credit unions will no longer pay debit and ATM charges if you do not have enough money in your account. Instead the purchase will be declined.  If you want to continue receiving overdraft protection, you must opt-in to your bank’s overdraft plan. Banks and credit unions are beginning to send out notices for opting-in or out now.

If you decide to opt-out, you will be allowed to opt-in later. You can also cancel your opt-in agreement at any time.

Currently, if you have Overdraft Protection, and you use your ATM card to make a purchase or withdraw money and you do not have enough funds in your account, the bank or credit union will allow the purchase to go through, but will charge you an overdraft fee. These fees can be as much as $20-$30 per transaction. If you make several purchases without enough money in your account, the fees can really add up.

The new laws do not cover checks or automatic bill payments. The bank may still automatically enroll you in their standard overdraft service for these types of transactions or they may require that you make a choice to opt-in or out of this service as well. If you do not want the standard overdraft coverage, talk to your bank. Some banks allow cancellation of the coverage and others do not.

Whether you decide to opt-in to debit and ATM overdraft protection, it is important to remember that every dollar you pay in fees is a dollar you lose. It may have gone towards your retirement, vacation, new car, new house, etc. If you are struggling to make ends meet and need help managing your money talk to a certified credit counselor.

Published Jul 6, 2010.