Who’s Afraid of the Big Bad Bank?

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Question: If the bank knocks on the door of your ATM or debit card made of straw and asks to come in for the ability to charge overdraft fees what should you say?

Answer: Not by the hair of my right to “opt-in”!

Then the bank will huff and puff but it can’t blow your card’s house down because the Federal Reserve Board passed a rule prohibiting them from charging overdraft fees on your ATM and debit cards unless you consent.  They also must play fair and give the same account terms and features to those who opt in and those who don’t.

There was a big push by banks to get their customers to “opt-in” for overdraft protection on their debit cards before July 1, 2010.  What was the magic of that date?  The U.S. Federal Reserve Board, also known as the Fed, passed a rule in November 2009 that prohibits banks from charging overdraft fees on ATM and debit card purchases unless the consumer consents or “opts-in” for the service.  The new rule became effective July 1, 2010.  Up to that date banks could charge overdraft fees for ATM and debit card purchases without customer consent.  After that date the banks would lose huge amounts of overdraft fee income potentially generated by customers who did not opt in to the program.

Federal Reserve Board Chairman Ben Bernanke said, “The final overdraft rules represent an important step forward in consumer protection…Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”  Interestingly, the Fed reported “The Board’s consumer testing shows that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they affirmatively consent, or opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.”

Take a look at River Valley Bank’s overdraft materials on their website.  The bank charges up to a $34 overdraft fee with a limit of 10 overdraft charges PER DAY!  That means if you have $2 in your checking account and you go to the convenience store for a $5 hot dog charged to your debit card, the bank can advance the extra $3 to cover your lunch and charge you $34 for the privilege.  In effect, they’ve changed your debit card to a credit card and charged $34 “interest” for the use of their $3 “loan”.  If you add money to your account after 7 days from your next paycheck the bank will pay itself first the $3 advance and the overdraft fee before releasing any deposited funds for your use.  In this case your “annual interest rate” on that loan would be over 59,000 percent!  Of course, the banks are very careful to call this a fee and not interest to avoid any charges of usury and to comply with the banking laws.

According to the bank’s website, it covered ATM and debit card overdrafts in the past “so as not to embarrass our customers at checkout lines…” It encourages customers to “consider your lifestyle, spending habits and record-keeping processes and how frequently you use your ATM and debit cards before you make this important decision.”

Here’s some do’s and don’t regarding overdraft fees:

  1. Don’t opt-in for the overdraft program.  This effectively turns your debit card into a credit card.  That’s not what you signed up for.
  2. Do keep a balanced account to avoid any overdraft fees if you opt-in for ATM and debit card overdraft protection.
  3. Don’t be embarrassed by debit card rejection at the store checkout.  It has happened to the best and brightest.
  4. Do spend, save and give from what you have, not what you hope for.  Live within your income.
  5. Do remember that if any business is aggressively trying to sell a product or service to you it probably pays them a generous profit.
  6. Talk to someone you trust about financial matters.  Don’t go it alone.

So don’t be afraid of the big bad banking wolf and stand up for your right to say “no” to ATM and debit card overdraft protection.


About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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