Wall St. vs Main St (or, should I stop worrying and learn to love the banks?)
July 1, 2010 6:43 PM   Subscribe

My bank is now asking if I'd like to enroll in overdraft protection. I think this is from the financial reform legislation, and I don't know the real benefits of enrolling vs not enrolling. If I don't enroll, the bank claims the charge will just be denied but I do not believe that banks are eager to miss out on their charges and fees and am reluctant. Any thoughts appreciated on this minor banking issue.
posted by glaucon to Work & Money (18 answers total) 4 users marked this as a favorite
what bank?

most banks will protect up to a certain dollar amount or a certain number of charges in a year/quarter/month. anything over that will be denied. some will still charge you a fee, plus you'll have the fee from the people who got their charge denied and any late fees you'll have accrued. most people don't close their accounts over bounced checks/charges so the bank isn't missing out on anything in the long run.
posted by nadawi at 6:48 PM on July 1, 2010 [1 favorite]

Response by poster: Not that credit score is the most important, but can they dock my credit score if they deny a transaction? My heart says yes but my head says no.
posted by glaucon at 6:50 PM on July 1, 2010

You are correct in banks not being eager to give up the fees, but with the new legislation, they made overdraft protection, a misnomer if you ask me, an opt-in affair. Basically if you don't want to have overdraft protection and you do not have enough money in your account, you will just be denied, versus the bank covering you and charging you money.
posted by thenuts at 6:58 PM on July 1, 2010 [2 favorites]

It comes down to whether you want them to accept the transaction and charge you a fee (some charge a fee for each day your account is in the red, others just charge you once) or if you want to be embarrassed at the register if you end up not having enough in your account to cover your purchase.

If you pay attention to your spending habits, you'll never need this. If you're broke, you SHOULDN'T get it, because you'll end up with a negative balance (which possibly could get worse each day) until you pay it back. In my youth, before they gave this option/explained it to you, I accidentally overcharged my account and ended up paying half my paycheck to make up for what was probably a small/careless purchase.

I have never heard that they dock your score if they deny a transaction, but it may affect your score if you have a negative account balance.

I'd say pass.
posted by two lights above the sea at 6:59 PM on July 1, 2010 [1 favorite]

I totally got burned on this. In fact, I got so burned, I asked about switching to a credit union.

My bank sold me on this overdraft protection and it wasn't until it kicked in that I realized that it was actually a line of credit. Yup, it's a credit card. I was fairly annoyed, especially with the interest, but I called, paid up, and said "cancel that service." But they didn't apply my payment right and did not cancel my service. Going to my bank didn't accomplish anything, calling didn't accomplish anything, and writing a letter didn't accomplish anything. I was dunned a couple of hundred bucks over it, mostly because I was furious about the situation, but I eventually paid. They will not be handling my money anymore, though, so ...

If you do this, ask a lot of questions about it. I failed to, because I was in a hurry, and I got hurt for it.
posted by adipocere at 6:59 PM on July 1, 2010 [2 favorites]

The new regulations prohibit them from allowing overdrafts on debit cards (and therefore charging fees) unless you opt-in to the program. They are indeed not eager to miss out on their fees, and that's why they're trying to get you to enroll.

There's no benefit to enrolling unless A. you're likely to accidentally wind up with insufficient funds occasionally when trying to buy something and B. you wouldn't mind being charged their overdraft fees in such a case.

No idea about credit score.
posted by equalpants at 7:01 PM on July 1, 2010 [1 favorite]

Best answer: See HERE

The new rule is
The final rule requires consumers to opt in, or affirmatively consent, to the institution’s overdraft service for ATM and one-time debit card transactions, before overdraft fees may be assessed on the account.
but if you really like the old rip-off rules, the bank is delighted to let you play that way.
posted by hexatron at 7:02 PM on July 1, 2010 [1 favorite]

Yes this is from the financial reform legislation. See many many news stories, such as this one, on how this is designed to protect you from fees and is quite likely to result in lower bank revenue - kind of the point really. If it makes you feel better, the banks will likely add new fees and may even eliminate things such as free checking which were de facto paid for by overdraft fees.

If you do not opt in, your transactions will simply be declined if you are out of money - no fees charged. I can't see a basis for dinging your credit rating in that situation, but I don't claim to know for sure that it will NOT happen.
posted by rkent at 7:04 PM on July 1, 2010 [1 favorite]

If this is for a debit card linked to a bank account, and you don't enroll, it means that if your account doesn't have funds available to cover the transaction, the transaction will be declined rather than being covered as an overdraft (generally with large fees attached.)

Until now, you may have been opted in whether you wanted to be or not.

I personally would much rather have the clerk hand me my card back and tell me the transaction's been declined rather than get dinged with an overdraft fee. If you're hovering near a zero bank balance, the last thing you need is a bunch of extra fees.
posted by zombiedance at 7:08 PM on July 1, 2010 [3 favorites]

Response by poster: I appreciate the help, everyone. Good answers and I will NOT be enrolling.

Happy Meta-filtering!
posted by glaucon at 7:16 PM on July 1, 2010 [1 favorite]

I see you have already been given and decided to follow the right advice, but I hate this stupid overdraft protection crap so much, I feel i MUST chime in just to say DO NOT GET OVERDRAFT PROTECTION!!! It is just another way for banks to charge you fees. I'm almost 100% positive denied transactions do nothing to your credit rating.
posted by Jeeb at 7:33 PM on July 1, 2010

Don't opt in. Just don't.

My story: due to an error on one of the accounts that debits directly from my checking account (I was debited twice in one month when I thought they weren't going to debit me at all - long story), my account was overdrawn last month. I had no idea, and, thinking I still had plenty of money in my account, I merrily went along swiping my card for coffee, lunch, parking, etc. Luckily, two days into this, I did my weekly "let's check out my bank account and make sure I have the amount of money I think I do!" check. To my horror and dismay, I realized that my account, instead of being $600 in the black, was overdrawn by over $400, almost all of which were overdraft fees. I had $385 in overdraft fees, at $35 a pop.

It was 5 days between when this happened and when I got my next paycheck - 5 days when I couldn't use my checking account at all. At the time I had just had to basically clear out my savings account for a different emergency (it's been an eventful spring!) and didn't have enough in it to cover my overdrafts. So I literally had no cash available. Luckily I had good friends, and a full cupboard and tank of gas to draw on, and I was able to borrow some money, but otherwise I would have been totally screwed for those 5 days, and it was incredibly stressful.

Now, I'm currently fighting with the account that incorrectly debited me, but my bank (Wells Fargo, those assholes) won't reverse the overdraft fees until the money goes back into my account, because until then they won't believe me that the debits were incorrect. So that means my account is still almost $1000 short, until I get this straightened out, which could take months.

This has been such an enormous hassle. I had to cancel a trip to go to the wedding of two old friends, because I didn't recover the money in time to buy a plane ticket (the $400 in overdrafts would have covered it). Now, of course this was partly my fault, because it was my miscommunication with the party that debited me twice that caused this, but, really, for such a small mistake to cause such stress and hassle is pretty crazy.

I would so much rather if, when I was overdrawn, the card was simply declined. It's a tiny bit embarrassing (although not even, really, considering that your card can be declined just because the person swiped it wrong), but so much less hassle that racking up hundreds of dollars of overdraft fees.
posted by lunasol at 7:44 PM on July 1, 2010

Look into your options with your bank and read the fine print. My bank (Wachovia) has a setup where you can open a credit card (if you qualify) to act as your overdraft protection. If you overdraft your account, the bank shovels cash in $100 increments into your checking account to cover your overdrafts, for a $10 fee per $100 increment.

This works awesomely for me for a few reasons:

* The line of credit, because it can be used as a cash advance, counts as cash to the bank for the purpose of qualifying me for the higher-tier checking account.

* If I need an emergency cash loan, I've got it, with a reasonable interest rate, even. Cash advances against my credit card are WAY more expensive in terms of fees.

* No death-spiral of overdraft fees per transaction.

Now, the thing is, I don't use it. I'm careful as hell. And I don't use that credit card for anything -- i keep it at $0. So if I do fuck up and overdraft, I pay back the $100 within days, as soon as I get paid next.
posted by desuetude at 9:24 PM on July 1, 2010

First, decide what you mean by "overdraft protection." You guys are all over the map.

I have a perfectly fine overdraft credit line from Citi that gives me small loans to cover overdrafts. It's like desuetude's, but there are NO FEES, just a reasonable monthly interest charge on what I've borrowed.

Read about the various banks' offerings, then just be smart. And ignore politics, this is just business.
posted by JimN2TAW at 10:46 PM on July 1, 2010

I just wanted to say that I'm so happy for this to start in August, because then my debit card will begin to act like a debit card: Don't have enough money? Get denied.

That is exactly what I want to happen, but my bank tried to sell me on how such a situation was "embarrassing."
posted by autoclavicle at 11:52 PM on July 1, 2010

This has been mentioned, and Ill second it...

Open a savings account at the bank, and contribute money to it regularly (small amounts are fine, things add up). Tell the bank to connect that savings account to your checking account for overdraft protection. My bank does this, and it eliminates the credit check for the overdraft protection, and any fees that the bank might charge.
posted by Arbitrage1 at 7:31 AM on July 2, 2010

First, decide what you mean by "overdraft protection." You guys are all over the map.

I'm pretty sure the OP means overdraft fees, because of the timing of the question - the financial reform that went into effect yesterday makes it so that people have to "opt in" to getting overdraft fees.
posted by lunasol at 8:42 AM on July 2, 2010

First, decide what you mean by "overdraft protection." You guys are all over the map.

This is true. There are many options and fee plans for overdraft protection; talk to your bank and see what is available to you. I have seen overdraft protection tied to a savings account, for example. In my case I got a mortgage through Wachovia (or actually a smaller bank that it eventually gobbled up) and as part of the deal they gave me a checking account with a lot of perks including free overdraft protection. In my case I already had a Wachovia credit card so it is tied to that and if I need it it costs me the (higher) cash advance interest rate; since I try to pay off my balance each month that would amount to little or nothing. You also want to consider how likely you are to bounce a check and the consequences of doing so. It seems that many merchants charge the maximum allowed by the state if a check is returned with insufficient funds; worse things can happen too. I had a friend who bounced the check for her car insurance; that led to the insurance being canceled, which then led to her license being suspended. It took a lot of time and a couple of hundred dollars she could ill-afford to straighten that mess out. So for me the peace of mind and freedom from worrying if my paycheck will get deposited before something clears is worth the negligible cost. My attitude might be different if I had to pay more, though.
posted by TedW at 9:39 AM on July 2, 2010

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