Interchange Rate Cap The Durbin Amendment to the Wall Street Reform and Consumer Protection Act permits the government to regulate debit interchange rates. The interchange…
An overdraft is when you do not have sufficient funds in your account to cover a payment or withdrawal. Financial institutions can’t charge you for overdrafts on debit card transactions — ATM withdrawals or one-time purchases — unless you have opted in (consented). By law, the bank must provide a notice outlining all its overdraft services and fees and allow you to make a choice.
Your bank must have your permission before it can charge a fee to cover a debit card overdraft if you do not have enough money in your account to pay for the transaction. It is your choice whether or not to enroll in your bank’s “standard overdraft practices” program.
Giving your bank permission to pay overdrafts on debit card transactions and ATM withdrawals, and to charge you a fee for doing so, is called “opting in” to your bank’s “standard overdraft practices.” If you have a joint account, only one holder’s agreement to opt in for overdraft protection is required. If you opted in at one time but later change your mind, you can opt back out anytime — just call your bank.
If you do not opt in to the bank’s “standard overdraft practices,” and you do not have enough money in your bank account, debit transactions, ATM withdrawals and point-of-sale transactions will be denied, and you won’t be charged overdraft fees (often as high as $35 each).
The “standard overdraft practices” rules do not apply to checks or preauthorized bill payments. With or without your opt-in, banks can charge overdraft fees for bounced checks or electronic bill payments when your account contains insufficient funds. It’s important to know that you can be charged more than one overdraft fee in a single day, as the fees are charged “per item,” meaning that each debit or check that bounces incurs a fee. This could add up to more than $100 per day depending on the circumstances.
Also not covered by the opt-in requirement are “recurring” debits that you have set up to allow companies to take money from your account. This means that if you establish an automatic bill payment through “online banking,” and a payment is sent when you don’t have enough to cover it, the transaction will “bounce” and you’ll be charged an overdraft fee.
It’s important to remember that opting in to payment of one-time debit and ATM withdrawal overdrafts does not mean that you will be given an affordable repayment schedule. The money that the bank advanced, as well as overdraft fees, must be paid within a few days, or you may be charged another fee. Any money you owe will be taken from your account by the bank when your next deposit is made.
You may be able to avoid overdraft fees by enrolling in a separate overdraft protection program at your bank. When you enroll, the bank will pay your overdrafts by lending you money through a “line of credit“ or by transferring money from your savings account to your checking account. The first option — credit-based overdraft protection — requires that you have a good credit history. The savings-based program requires that you have enough money in your savings to cover overdrafts. Both will charge a small transaction fee, but you will not pay bounced check fees or overdraft fees. Ask your bank for more information.