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Dear Consumer Ed:
Are banks obliged to reject attempts to use a debit card when there are insufficient funds in the account?
Consumer Ed says:
When you use your debit card to make a purchase or other electronic payment for an amount greater than the balance in your checking account (thus creating an overdraft), the bank can choose to make the payment, or not. In 2010, the Federal Reserve issued new rules regarding fees banks charge for overdrafting debit card and ATM transactions. Under the old rules, banks were permitted to automatically enroll their customers in their standard overdraft practices. These overdraft practices typically involved charging customers a fee to provide the additional funds. However, under the new rules, the bank must obtain the customer’s permission to apply its overdraft practices to the account before charging a fee, which the customer typically provides by agreeing to a notice sent by the bank.
If you don’t opt in to overdraft procedures and you attempt to make a purchase or withdrawal which would overdraft your account, the transaction will typically be declined, but you won’t be charged an overdraft fee. However, if you’ve opted in to overdraft protection, your account can be overdrafted, and the bank can then charge you the fees set under the terms in your opt-in agreement. Be aware that these fees can mount up quickly, so make sure you know what you’re agreeing to.
When setting up new accounts, pay careful attention to the documents you sign. If you prefer your card to be declined and your account not to be overdrafted, don’t sign the opt-in form that will enroll you in the bank’s overdraft protection plan. If you’d like the overdraft protection, then sign the form. If you’ve previously enrolled in the overdraft program but no longer wish to be, you can contact your bank and opt-out of their overdraft policy.
Again, these rules apply to debit card and everyday transactions; they don’t cover checks and automatic bill payments. Banks can still automatically enroll their customers in standard overdraft procedures for payments made using those methods.
In sum, to avoid overdraft charges, remember:
- Do not sign an agreement with the bank authorizing overdraft charges.
- Keep track of the money in your account by keeping your check register up to date.
- Make sure to record your electronic transactions as well.
- Make sure to take into account automatic bill payments.
- Review your account statements each month.
- If you do overdraft your account, deposit money into the account to cover the overdraft and any fees in order to avoid any additional charges.
- You can link your account to a savings account. You may be charged a transfer fee when overdrafting your checking.
- You can link your account to a credit card you have with the bank. You may be charged a cash advance fee when overdrafting your checking.
If you have a complaint about the fees charged by your bank, you can try to resolve the problem directly with your bank. If you make no headway on your own, you may want to file a complaint with a federal or state agency that enforces consumer banking law. If your complaint involves a Georgia state-chartered bank or credit union, you can file a complaint with the Georgia Department of Banking and Finance (http://dbf.georgia.gov); otherwise, you can contact the Consumer Financial Protection Bureau to file your complaint (www.consumerfinance.gov/complaint)....more>
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