Banks often automatically enrolled customers in overdraft programs, then charged fees of around $30 for transactions that went beyond the amount a cardholder had available, but many consumers deemed these charges unfair.
Under the new rules, banks must first receive customers' permission to apply standard overdraft practices to everyday debit card and ATM transactions, and automatically opt customers out of overdraft protection if they fail to state a decision.
James Thurston, spokesman for the Ohio Bankers League, said the new regulations provide a framework that establishes the rights and responsibilities of customers and their banks, which partner in electronic fund transfer system transactions, including ATMs or point-of-sale transfers.
Before the recent amendment, federal law was silent when it came to overdraft protection, Thurston explained.
He said the banking industry and federal regulators began conducting a massive communication blitz months ago to inform card users of the new rules.
Robert Palmer, president and chief executive director of the Community Bankers Association of Ohio, said many cardholders have chosen to opt out of overdraft protection to save themselves an overdraft fee, but failed to realize there might be situations in which the protection would come in handy.
Many customers who failed to realize they might actually need the protection have become upset about their cards being denied, he said.
For instance, Palmer added, when cardholders are buying hundreds of dollars of groceries, they aren't going to want their cards to be denied when they get to the check-out counter. But those who decide to opt out of overdraft protection will be denied if they exceed their available cash, he explained.
"I don't think the customer understands what opt out and opt in means," Palmer said. "If you opt in and you do not have sufficient money in your account, you (still) will be allowed to charge over (your balance), and then you are charged a fee."
He added that he believes the overdraft protection fee is reasonable, since financial institutions are charging cardholders for a service when they provide overdraft protection. It's almost like a line of credit, he explained.
Many people opted out of overdraft protection due to fear of the fees, but the fees only occur if a cardholder withdraws funds beyond what they have available, and many people probably wouldn't do so, he explained.
Palmer said although the requirement of financial institutions to allow customers to choose whether they want overdraft protection "looks like a great consumer protection," he doesn't think it makes sense for customers to opt out, because they lose a valued service by doing so.
"I believe that most customers wouldn't want the embarrassment of having the sale rejected," said Palmer.
Thurston agreed that awareness of what overdraft protection means has been pretty negligible, but he said he believes awareness is increasing.
"We are finding some interesting trends that are related to demographics," Thurston said.
"Younger customers are tending to opt in at a higher rate, at this early stage. Anecdotal input from OBL members is that customers who have utilized the service before are opting in at a higher rate than those who have not."
So what is the best option for customers? It depends wholly on cardholders, and the types of protections they want when making transactions.
According to the Federal Reserve's website, there are several facts cardholders should consider when deciding whether to opt in or out of overdraft protection.
Many card users' banks offer other forms of overdraft protection, such as links to savings accounts, so when transactions amount to more than their checking account's balance, the money is taken from savings rather than from checking, which would result in a negative amount in the account and an overdraft fee.
Links to savings accounts may be less expensive than standard overdraft practices, according to the Federal Reserve's site.
Card users who choose to opt out should be aware that the new rules do not cover checks or automatic bill payments that might be set up to easily pay bills. Banks may automatically enroll customers in their standard overdraft protections for these types of transactions.
For accounts established on or after July 1, banks were required to abstain from charging overdraft fees unless customers opted in. For existing accounts, beginning Aug. 15, banks standard overdraft practices won't apply to every-day card and ATM transactions if customers choose to opt out.
Customers can opt out of overdraft protection at any time if they initially chose to opt in, or opt in at a later date if they initially chose to have no protection., JACKIE NASH, Daily Reporter Staff Writer, Copyright 2010, The Daily Reporter, 580 S. High St., Columbus, OH., Due to years of confusion among cardholders and inconsistency among
different states' overdraft policies, the federal government recently
became involved in setting regulations for overdraft protection.
However, according to Ohio bankers, some consumers are not fully aware
of what the protections mean., publish, open, , , Overdraft protection: Consumers must decide, 2011-11-07 20:58:38, , 0, , Overdraft Fees, Policies, Federal, Government, Federal Reserve, Protection, ATM, 0, 1, 1, article, 1, 0, 0, 2010-07-29, 2, 2">
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