Next week, overdraft fees will undergo a fundamental change. Starting July 1, banks will no longer be able to automatically charge you for overdrawing your account. Instead, you will have to opt-in to overdraft protection.
Until now, consumers have had relatively little say in the matter. Most banks automatically enroll clients in overdraft protection plans and charge a $30-$40 fee each time you withdraw money or make a purchase with your debit card that is for more than the amount you have in your checking account. In theory, this is a useful way to ensure that you can buy necessities even if you have little or no money in your account. But in practice, consumers are often charged $30 or more for buying a $2 cup of coffee when it would be cheaper to just have that purchase declined. Even worse, you may continue making purchases for days, racking up overdraft fees, before you check your statement and find out you’ve overdrawn your account.
At the end of last year, the Federal Reserve decided to overhaul this policy and force banks to give consumers the power to decide on overdraft protection for themselves. “The final overdraft rules represent an important step forward in consumer protection," Ben Bernanke, the Chairman of the Federal Reserve, said at the time. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."
Now, consumers will be able to choose whether to enroll in this protection plan, or abandon it all together. For those who decide to forego overdraft protection, anytime you overdraw your account, your purchase will be rejected outright.
The first downside of this change is that if you have a bank account at any of the major banks, chances are you’ve been receiving an incessant amount of e-mail about overdraft protection. I seem to get e-mails every other week from Chase (Stock Quote: CCF) pushing me to find out if overdraft protection is right for me.