New regulations affect debit card overdrafts

People who routinely use their debit cards to pay for purchases may soon experience some changes if they don’t specifically direct their financial institutions to provide overdraft protection on their accounts.

A new federal regulation takes effect Sunday, Aug. 15 regarding overdraft protection.

Most banks have been notifying their customers of the upcoming change and providing appropriate forms for people to select the service.

The new rules came about to protect consumers, Jim Ness, senior vice president at Glacier Bank in Kalispell said.

“We’re concerned that what customers are used to may be changing,” Ness said. “And we want to provide customers the services they are accustomed to.”

Glacier Bank has identified about 26,000 customers who could be affected by the change, Ness said. Many of those customers are being contacted by phone, being told about it by a bank employee when they visit the bank or sent letters.

The new regulation means banks are required to obtain customer’s approval before considering payment of automated teller machine withdrawals and one-time debit card purchases that might create an overdraft in the customer’s checking account. Some banks have long provided that service. Many banks offer standard overdraft protection with all checking accounts. Those are typically in place for recurring debit card transactions or bill pay transactions. Many banks also offer overdraft protection plans that link to a customer’s savings account or to another line of credit.

After Sunday, federally regulated institutions that offer checking accounts with debit cards will no longer be allowed by the Federal Reserve Board to charge fees for paying overdrafts on automated teller machine or debit card transactions unless the customer consents or opts in to the overdraft service for those types of

transactions. If a bank wants to continue to offer overdraft service, it must notify its customers, Ness said. The regulation applies to personal accounts, not business accounts.

If a customer opts in for the service, the bank provides them a list of fees charged for overdraft protection and can then assess those fees.

“If you like the way your account has been working, opt in,” he said. “Otherwise, don’t.” Customers must opt in for the service. Anyone who doesn’t sign up at their bank is automatically opted out.

Financial institutions pay overdrafts at their discretion, Ness said, which means there are no guarantees of when overdrafts are covered, unless a customer now specifically requests the service from their bank. “At times we allow customers to use more funds than are in their account,” he said. “Many of our customers have never overdrawn, but they may have had times they accessed money they didn’t really have in their account.”

At Park Side Federal Credit Union, officials are preparing what they believe will be a better option for customers than paying overdraft fees, Director of Member Services Josh Kroll said.

In the short term, all customers will be opted out to comply with the regulation, he said. Once the new plan is developed, members will be notified and given options.

At any time, customers can change their preferences to have overdraft protection coverage in place or to remove it from their accounts, Ness said. But anyone who hasn’t opted in by the start of business Monday morning is considered to have opted out.

When customers opt out, financial institutions won’t pay ATM or debit card transactions that cause the customer’s account to reach a negative balance. If a person’s account has insufficient funds to cover a transaction, it will be declined. People could then use an alternative method to pay, for instance they could write a check or use a credit card, Ness said. Or they could not make the purchase.

Ness cited a few instances when customers might find it advantageous to have the overdraft protection. If someone has gone to the grocery store in the morning and plans to deposit their paycheck that afternoon, but the grocery store bill exceeds the amount they have in their checking account, Glacier Bank would approve that transaction if the customer had opted in for the coverage. The overdraft protection also provides people with a safety net, he said, in instances when someone needs to have their car towed or repaired in an emergency situation.

Prior to the introduction of debit cards, if people wrote checks that exceeded the balance in their account, the seller and the bank didn’t immediately know, Ness said. But with the advent of debit cards and real-time banking, bank employees can almost immediately see if a customer is spending more money than he or she has in an account.