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Banks Make Hard Sell for Overdraft Coverage


Banks Make Hard Sell for Overdraft Coverage

Readers have emailed me examples of the hard sell their banks have been making regarding overdraft coverage. Here's an example from Chase which puts a very favorable spin on overdraft coverage:

You have a choice about Chase Debit Card Overdraft Coverage

It's a feature that may allow your everyday debit card transactions to be approved at Chase's discretion, when you don't have sufficient available funds to cover it. You may find it helpful if you need to make an unexpected purchase (Standard overdraft fees may apply). Learn more now!

The Federal Reserve Board passed new regulation that will soon fully take effect which will make it much more difficult for banks to make money from overdraft fees. Here's how the FDIC describes these new rules:

financial institutions will be prohibited from charging fees for overdrafts on ATM withdrawals and one-time debit card transactions at "point of sale" (POS) terminals in stores unless the individual agrees up front ("opts in") to pay those fees.

I've seen other banks and credit unions making the same pitch. I don't know why anyone would want this coverage. I doubt there's one in a 1,000 who would prefer to pay around $35 just to be shielded from the "embarrassment" of having a purchase at a checkout counter denied due to insufficient funds.

Unfortunately, this regulation and the soon-to-be interchange fee restrictions for debit cards will likely hurt savers as banks try to make up for the loss of revenue by adding new fees and lowering deposit rates. I'm particularly worried about reward checking accounts. However, I would think these new regulations won't have too much effect on many of the internet banks which probably make much less on these fees than brick-and-mortar banks. Hopefully, it will remain easy to find free internet checking accounts and high-yield internet savings accounts (high-yield in relative terms).

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mschoenf   |     |   Comment #1
Bank of the West is doing this as well when you log on.  "Act now to keep your debit card overdraft protection" with a link.  I think it's a bit of a scam that they: 1) do no mention the overdraft fee amount (though I assume the people opting in must know since they get them a lot) and 2) do not mention the alternatives that are cheaper such as an overdraft line or savings overdraft link. 3) it's not really protection, but enabling you to indulge in a purchase that incurs a large fee.  Protection would be an OD savings link or mini-line that is less costly than the $35 OD fee.
Thaiguyinla   |     |   Comment #2
I've received at least one letter on this subject from each of my RCA banks. They all take basically the same approach: please act quickly to ensure that your purchases will continue to go thru, even when you don't have enough funds in your account. And of course, the part about the bank charging a $25-$30-$35 fee every time that happens, even if you're short by $1, is pretty well low-keyed... Of course, I've said NO NO NO to every single one. I've rarely have had any shortages in my accounts, and when I did, it was because my banks were 4 or 5 or 6 days late in posting some debit, meaning the online banking balance that I was relying on wasn't up to date. Between the choice of paying a $25-$35 fee to the bank or having the merchant say, sorry, your transaction won't go thru, and then paying cash or using another card, I'll take the latter every time.
adityanm   |     |   Comment #3
The only time I use debit card is to meet RCA requirements but my balance hovers around 25k where could any overdraft come? Some one should send the bank executive to see a psychiatrist.

Having said that what harm can come to me even if I sign up to satisfy  their whim?
Anonymous   |     |   Comment #4
The potential harm is that it gives a thief more to steal if they ever target your account.

That means more transactions to dispute and arguing about overdraft fees and negative balance fees and who-know-what-other fees in addition to disputing the transactions themselves.  I would prefer they just stop stealing when my account balance reaches zero.

If you need more money than is in your account, use a credit card.  Even if you need cash in an emergency situation, learn the PIN number for one of your credit cards and use it for a cash advance at an ATM.  Usually the cash advance fee is $5 or $10 and, of course, interest until you pay it back.  But that's still a lot less than the $35 minimum fee for overdrafting your checking account.  (Save this for a true emergency situation, of course.)
mschoenf   |     |   Comment #5
Talk about real hard sell, West Bank actually sent me a paper letter with the pitch and a special URL with my name in it I could enter to automatically opt-in.  Or I could check a box and send back in a postage-paid envelope.  I'd love if someone at their upcoming earnings conference call would ask how important these fees are to their business and what the implications are if they were to drop significantly.  I've actually listened a few times and hardly anyone asks questions, so would be a good spot to ask something like this...

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