Changes in Overdraft Protection

March 15, 2010 8:28:55 AM PDT
Joan Jensen, president and CEO of The Central Credit Union of Illinois, shares important information to help people sort through the pros and cons associated with the new opt-in/opt-out regulations when it comes to overdraft protection.Originally offered as a courtesy to customers in good standing, overdraft protection on checking accounts provided responsible individuals with immediate access to cash for unexpected expenses and at the same time helping them avoiding public humiliation. And now, due to recent changes to debit card/ATM regulations, the time has arrived for everyone to decide whether to opt-in or out of overdraft checking protection.

The latest number show that consumers spent $20 billion in overdraft fees on debit purchases and A.T.M. transactions in 2009. Nearly 93% of that $20 billion was incurred by a minority of consumers (approximately 14%) who chronically exceeded their balance. So, determining if this service is right or wrong for you should be a personal choice based on a combination of personal options and needs, complete and accurate information, and thoughtful consideration.

CONSIDER ALL THE OPTIONS Some banks are resorting to scare tactics to influence account holders into signing on to opt-in overdraft fee programs - "imagine having car problems on a dark secluded road and not being able to use your debit card to pay for roadside service." Sound scary? Before rushing to sign up, know all the other options for overdrafts on checking accounts including:

  • Linking your checking account to a savings account at the same financial institution. Usually, the most cost efficient way to handle an overdraft in your checking account.
  • Linking your checking account to a line of credit loan for overdraft protection.
  • Using another form of payment-such as a credit card.
  • Even if you have signed up for an opt-in fee based program, consider these options first because they are usually cheaper than a fee based opt-in program.


    • The idea of having an insurance policy to guard against denied transactions appeals to you. Like other insurance policies, even though you hope to rarely use it, you'll have coverage just in case.
    • You can avoid the embarrassment of a denied transaction.


    • Overdraft fees can be burdensome budget busters. You want to save money and avoid paying any more of these fees on ATM and debit card transactions.
    • You don't need a safeguard against spending money that is not available in your account.
    • You will be less likely to succumb to impulse spending if you can't overdraw your account.


    • Opt-in overdraft fee programs apply only to overdrafts with ATM and one-time debit card transactions. There are no rules for paper checks, ACH electronic debits, or reoccurring debit card transactions.
    • In addition to the overdraft fee, there may be other fees for having a negative balance on your account.
    • Even if you opt-in, financial institutions retain the right to deny a transaction.
    • If you do not opt-in, financial institutions may still allow your account to become overdrawn. But, if it is an ATM or one time debit card transaction, they cannot charge you a fee.
    • If you take no action, then you will not be part of an opt-in overdraft fee program. It is assumed that you have opted-out if you don't take any action.
    • Change your mind after you opt-in? No, problem. You can opt-out at any time by notifying your financial institution.