Do not get fooled again: Banks new overdraft rules…

August 16th, 2010

New Checking Account Overdraft Rules Now in Effect

Your real options are explained here by Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

“Some Americans may be surprised by new changes in their checking accounts.Overdraft protection is no longer available for checking account customers unless they “opted in” for this service. The new Federal Reserve rules started yesterday.

Before these new Federal Reserve rules took effect, most banks automatically added courtesy overdraft protection to checking accounts, providing the detailsand fees in the fine print. Some customers didn’t realize the high price of thefee until they incurred the charge.

An overdraft occurs when one does not have enough money in a checkingaccount to pay for a transaction, but it is paid by the bank anyway.

This service is a loan from the bank and it isn’t free. Banks charge anon-sufficient funds paid item fee (NSF) that is typically $30-$40. A fee is charged for each transaction paid in this manner.

If you did not opt in, your bank’s standard overdraft practices no longer apply to your everyday debit card and ATM transactions. These transactions typically will be declined when you don’t have enough money in your account,but you will not be charged overdraft fees.  The new rules don’t lock you to your choice forever; you can still make changes to your account. You can choose to opt in or out of overdraft protection at any time.

The rules are good for consumers, but will reduce revenue for banks.

Some banks will try to persuade customers to choose the “benefits” of overdraft protection since banks are anxious to hold on to as much fee income as they can.

“This is a good time to sign up for free online alerts offered by most issuers. You can get a daily text or email that tells you the balance inyour account. Knowing the amount of money in your checking account can help you avoid the embarrassment of a declined purchase,” says Bill Hardekopf,CEO of LowCards.com and author of The Credit Card Guidebook.

The new rules do not cover checks or automatic bill payments–banks can stillauthorize and pay overdrafts for these transactions at their discretion andcharge a fee. If you do not want your bank’s standard overdraft practices inthese instances, talk to your bank; they may give you the option to cancel. Statistics on how many people have opted for overdraft protection are notyet available.

A July poll conducted on the National Foundation for CreditCounseling website found that that 26% of 2,089 respondents intended toopt in for overdraft protection.If you are interested in the overdraft protection, be sure to carefully readthe fine print to understand its costs and limitations.

The cost of an overdraft may not end with the NSF paid-item fee. If your account remains overdrawn, you might incur additional fees.

Secondly, transactionsare not necessarily processed in the order they occur so banks can chargethe items to your account in any order they choose.

Finally, even if youchoose to opt-in, the payment of an item is discretionary. Banks willchoose which transactions to cover so a consumer can’t always can’tcount on having overdraft protection when you need it.

Your bank may offer less expensive alternatives to overdraft protection.  Some banks allow you to create a link to your credit card, savings accountor line of credit that will fund overdrawn transactions. There is a fee foreach transaction, but it is typically $5-$10, much less than the overdraft protection.You must contact your bank to set up this alternative service, since it is not part of the opt in selection.”LowCards.com ( http://www.lowcards.com ) simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categoriessuch as lowest rates, rewards, rebates, balance transfers and lowestintroductory rates. It also gives an unbiased ranking and review fore ach card.

The LowCards.com Complete Credit Card Index( http://www.lowcards.com/CreditCardIndex.aspx ) is the most objective and comprehensive resource on the Internet which allows consumers tocompare rates for over 1000 credit cards offered in this country.Created by Hampton & Associates, the company has been analyzing thecredit card industry and supplying objective websites on variousconsumer expenses for ten years.

For more information, contact Bill Hardekopf at 1-800-388-1910 orbillh@LowCards.com.

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