Yay or nay overdraft protection?
Posted on March 26th, 2009 – 5:43 PMBy Kara McGuire
Say you’re shorter on cash than you think and are paying for a latte and a donut with your debit card. Would you prefer the transaction to go through even if you don’t have enough cash in your account, digesting a hefty overdraft fee along with your breakfast? Or would you rather the transaction be declined?
I definitely fall into the latter category. I will skip a donut to save $35.
But currently, consumers aren’t given that choice. Banks just let the transaction go through and laugh all the way to the, er, bank.
The Federal Reserve is currently looking at whether this should change. Should banks give consumers the chance to opt-in to pricey overdraft programs. Or should they have the right to opt-out?
Opting-in is preferable to opting-out because inertia will have more people sticking with the protection by default, even if they can’t afford to.
Have an opinion? You have until March 30th to share it with regulators.
Shoot an email with the subject R-1343 to: comments@federalreserve.gov. Or use this form created by Consumers Union.
5 Responses to "Yay or nay overdraft protection?"
I would also prefer being declined…
Best thing I ever did, though, was sign up for ready reserve. A line of credit that charges only interest on the $200 it gives you when you go over your available balance. They have started charging $1 per transfer if the bank flips the $200 over, rather than you initiating it online, but even so, I’ve never paid more than $3 for accidentally going over my balance. I’ll never bank without it again. Not good for people who would actually spend all $200, but if it’s just to cover a check that clears earlier than you thought (or a transaction you forgot to write in the balance book), it renders overdraft protection unnecessary.
Opting-in is always preferable. Most people are just too busy to notice what all they are enrolled in, to opt-out. I hate this in magazine subscriptions also. Many of them just renew you unless you tell them not to.
This is one of the many reasons I’m in a credit union - if there’s an overdraft on my checking account, they do an automatic transfer from my primary savings to cover it.
(yes, I know that only works for people who have enough capital to have a savings account, but that’s not the point.)
Ditto on the credit union for me. Mine has a reasonable limit on the number of times they’ll cover you with your savings account (or line of credit, if that works better for you), something like 4 or 5 a month. After that I think you get charged, but that’s more than reasonable. I think it’s covered me maybe 5 times in the 9+ years I’ve had the account, but it’s totally worth its weight in gold.
I work at a credit union and we do the same mentioned above. The checking is backed up by the savings or line of credit first. We also offer members the opportunity to opt out of the ODP program if they wish.
