banktime.com

Facing the loss of billions of dollars in overdraft charges every year, banks are bending over backwards to make paying fees a more attractive proposition for customers. Yesterday, a federal law kicked in as part of the Credit Accountability, Responsibility, and Disclosure Act that makes it illegal for banks to enroll accountholders in overdraft “protection” unless it is specifically requested. Unsurprisingly, many Americans simply don’t want this particular “protection,” thank you very much. It’s estimated that only around one quarter of all American bank customers have replied to banks’ requests to respond yes or no on the issue of overdraft protection enrollment, and that less than one-third of those who do reply (that’s one-twelfth of customers, to help you do the math) are willing to be charged a fee for transactions over their cad limits to be cleared as opposed to simply declined.

Banks, realizing that they are about to be up the creek without a paddle – having long earned a tremendous percentage of their profits on fees – are rushing to try and make overdrafting a less expensive and horrible experience for consumers. Overdraft fees are coming down, accounts with monthly fees that protect customers from overdraft charges are being launched, and fees are being waived completely in the case of overdrafts that make the account only slightly negative.

Under the new national law, banks must decline attempted debit card purchases or ATM withdrawals if the customer does not have that amount of money in their account and has not set their account up for overdraft protection. No fees will be charged when the card is declined. Customers will, notably, still be able to write checks, authorize electronic transactions or pay bills through the bank’s online system, or have a recurring payment withdrawn from an insufficient balance. Transactions of this type that go through with an insufficient account balance will still incur fees.

Banks are trying to tempt customers into signing up for their overdraft programs by making the terms less punitive. U.S. Bank, for instance, has up until recently charged thirty-five dollars per overdraft after the first one that happened every year. Their new policy drops the fee to just ten dollars on returned transactions of twenty dollars or less, and thirty-three dollars for transactions over twenty dollars. If the total overdrafted amount in your account is less than ten dollars, you will not incur a fee at all. Chase, Fifth Third, Huntington, and PNC have all also dropped fees for overdrafts of less than five dollars. Chase has taken it a step further by capping the maximum daily overdrafts fees that can be charged to three, down from a former limit of six. Huntington used to allow eight, and now only permits a total of four per day. Chase and Fifth Third have both also rolled out programs that would send text message alerts to customers if and when their account balance drops below a threshold that could leave them in danger of overdrawing the account. Lesser-known Key Bank is enacting the most consumer-friendly overdraft policy changes of all. Starting on Friday, the bank unveiled a new account product that, for a ten dollar monthly fee, would allow two fee monthly overdrafts, reduces subsequent overdraft fees for transactions under one hundred dollars to just eighteen dollars, doesn’t charge a fee at all for negative account balances of ten dollars or less, and gives customers access to several perks, including credit report and score monitoring as well as comprehensive identity theft protections. These changes, say bank representatives, came about based on the complaints of customers who were being charges gross amounts of fees based on overdrafts that were not for very much money. In the interest of making the “punishment” better fit the “crime,” overdraft fees for low-level transactions were reduced.

Industry experts forecast even more options for customers from banks on the issue of overdraft fees. Lending institutions will likely get pushy on products that link checking accounts to credit cards, savings accounts, and credit lines. The fee for transferring overdrafted amounts from one account to the next is only around five dollars, plus an annual fee that averages about thirty dollars. If you are prone to the occasional overdraft, this may be a much cheaper option for you than the previous account models. The American Bankers Association estimates that one in every five banking customers will have at least one overdraft in a year’s time. For some people, banks claim, overdraft protection should be viewed as an insurance policy. Having this protection in place can save you significant embarrassment and stress if you should need to make a transaction beyond your spending limit, they point out.

Customers who are considering adding overdraft protection to their accounts should come armed to their banks with a list of questions designed to determine what exactly you are getting from your bank. One important question to ask is whether overdraft fees stay the same no matter how many transactions bounce over the course of a year, or whether the fees increase with usage. Does the bank waive overdrafts for very small boo-boos – say, five or ten dollars? Is there a limit on how many overdraft fees can be charged in a single day? Does your bank offer you the option of enabling web or mobile alerts to warn you of a dangerously low balance? Are you able to link your account to a credit card, savings account, or line of credit that might off a low transfer fee if you overspend your checking account and want to access cash from another source? Is there a fee for overdrawn accounts sitting for too long, say five to seven days? How much? These are all things that you should know about your bank before committing to an overdraft protection account with them.

The Consumer Federation of America, however, says that the banks’ tactics are nothing but a ploy to ensnare customers in a situation where they are poised to pay more fees. It’s much better to have a transaction turned down at the register than to pay thirty-five dollars to have it covered, they opine. Early sign-up numbers seem to indicate that many of America’s banking customers seem to feel the same way. Some smaller banks across the country have reported less than five percent of customers responding to requests to reply on the topic of overdraft protection, and even the most successful banks have received maybe thirty percent of replies. It’s not as if there’s an RSVP date on responses, however. Customers can enroll in overdraft protection at any time, and will have the coverage within around twenty-four hours’ time.

Congress clamped down on overdraft fees as part of its comprehensive banking reform bill that passed last year. The legend of the forty dollar cup of Starbucks coffee (a five dollar purchase chased with a thirty-five dollar overdraft fee) had long filtered through the halls of the Legislature, leading many lawmakers to wonder how they could best serve constituents who were being slammed left and right with bank fees. American banks collected thirty-seven billion dollars in overdraft fees during 2009 alone, a one hundred percent increase from 2000. The topic has long rankled banking customers. Scores of consumer complaints led Congress to force banks to get permission from customers before enrolling them in one of these “protective” programs. It’s not that banking customers shouldn’t sya on top of their own accounts and make good choices, say experts – it’s just that a preponderance of complicating factors (deposits that take days to credit to your account, gas pumps that put large freezes on your account, transactions going through midday, tips not immediately showing up on restaurant receipts, etc.) can make things difficult to track. Congress’s view was that overdraft fees had burgeoned out of control, and just needed a tighter hand.