Practice Safe Checking

Crazy how things happen. A great idea like Overdraft Protection gets jumbled up and abused by some financial institutions. Lots of people get ripped off and rightfully mad or confused. Then the government feels compelled to step in. And then, things can get even more convoluted.

In the interest of simplifying the overdraft situation, let’s recall what it is and how it works and how things got out-of-hand.

Overdraft protection basically is your CYA if you make a mistake in your checking account. Usually you give your FI permission to preauthorize transfers from another account (usually your savings) to pay overdrawn checks, debits, or ACH withdrawals. You are often asked if you’d like overdraft protection at the time when you open the checking account. Or, you might have it suggested if you had a few overdrafts on your checking account.

FIs got a bit zealous when they started applying overdraft practices to ATM and debit card transactions. If an ATM gave them cash or a debit card purchase was approved, most people rightfully assumed that their accounts were fine and had plenty of money. Sadly this wasn’t so. And then came the fees.

Overdrafting is expensive. Fees average around $30 per transaction. Those people; the poor unfortunate souls who don’t belong to Coors Credit Union; that were given money from ATMs and overspending with debit cards, got badly dinged by overdraft fees.

Debit cards have also suffered as a result of poor overdraft practices. Debit cards were never designed to extend money when it wasn’t available. Advancing overdraft protection to these cards has given them a bad name and tainted many people’s view of them. The new law, hopefully, will clear that up.

If you do business with another FI, you may receive a request to authorize ATM and Debit card overdrafts. The choice is yours, but these types of transactions can not take place without your permission.  Also, be sure to carefully read the authorization. I’ve seen some authorization that come under the title “Overdraft Protection”, further reading indicates that the authorization is specifically for ATM and debit transactions. If you don’t want them to give you money from ATMs or for debit card purchases when you don’t have it, don’t sign.

So the moral of this post is “Watch out for FI fee generators wearing Overdraft Protection clothing.”

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