You go into a bank to open a new checking or savings account and one of the selling points is the “Overdraft Protection” that comes automatically with your new account. What is not disclosed with this selling point is that banks take in almost 40 billion dollars in revenue from this type of “protection” to the account holder. New banking laws that go into effect at the beginning of the fiscal year, 2010, are designed to protect account holders from the bank’s overdraft protection and associated fees.
Advocates for banking reform advise that it is much better to have your checking account linked to a savings account in case of a need for overdraft funds, rather than assume the associated automatic fees the banks impose. A study by the Federal Trade Commission found bank practices and procedures for processing transactions were set up to maximize fees from their clients, especially those who are unaware of how daily balances are computed by the bank , and those who do not regularly reconcile or remain aware of the funds in their bank accounts.
New laws going into effect on July 1, 2010 will apply to ATM machine and point-of-sale debit card purchases and bank overdraft policies. Paper check and automatic bill payments set up by the account holder will still remain under current overdraft policy. Part of the problem is that the consumer does not know that major banking institutions process daily transactions from highest to lowest. So if an account holder makes 6 debit card purchases in a day, and it’s the last and largest purchase that drops their account to below zero, they can still be charged 5 or even 6 overdraft fees, because the bank will process the largest transaction of the day first and thus maximize the amount of fees they can charge the consumer. Keeping a small cushion in a savings account at the same bank, and linking this account to the ATM or debit card account, can prevent these $35.00 fees from adding up.
New law will make it so consumers have to opt-in to overdraft protection rather than have it imposed automatically. It will also make the banks provide notice to the consumer before clearing an overdraft transaction and charging a fee. Educating consumers to the fees banks charge for both checking and savings accounts will also go a long way to avoiding costly banking charges. Consumers are demanding more accountability and transparency for their financial institutions, and lawmakers are listening to their demands.
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