NEW YORK (MainStreet) — A few days after opening a checking account with Chase (Stock Quote: JPM), the bank sent me the above letter.
I felt inclined to share the correspondence since it took me a moment to realize the “debit card coverage” mentioned in the big, black box up top actually referred to overdraft protection, a service I’ve reported on extensively and was all too happy to opt out of when I initially opened the account.
As we’ve reported, overdraft protection charges consumers whenever they spend more than the balance of their linked checking account. The feature is attractive to consumers who want to be spared the embarrassment of having their card declined, but overdraft fees tend to be very high.
Modifications made in 2010 to Regulation E, a federal law that regulates electronic fund transfers, mandated that banks make consumers opt in for overdraft protection instead of enrolling them by default. The change has led a majority of consumers to forgo the protection, and subsequently has cost big banks substantial revenue. Industry analyst Moebs Services found U.S. bank overdraft fees fell from $37 billion in 2009 to $29.5 billion last year.
The lost revenue certainly explains why a letter like the one above may end up in your mailbox, but consumers shouldn’t let careful wording dissuade them from opting out of a service they don’t really want.
Banks charge, on average, around $34 each time they cover an overdraft transaction, and there are often other charges incurred if you don’t shore up the account. (For instance, Chase, which was admittedly nice enough to outline the costs associated with its debit card coverage on the back of said letter, charges an additional $15 each time your account is overdrawn for five consecutive business days.)
All of these practices are perfectly legal. The modifications to Regulation E did not limit how much banks can charge in overdraft fees and it also didn’t restrict the number of times banks can continue fining customers for a single violation.
While many thought the initial reform of Regulation E meant new legislation related to overdraft protection was off the table (at least for a while), the Consumer Financial Protection Bureau intends to introduce further regulations in regards to overdraft protection and will be discussing checking account practices Wednesday in New York City.
In the meantime, there’s no reason to succumb to the pressure.