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You Down With O.P.P.?

July 10, 2010

Have you opted out of your banks Overdraft Protection Program?

You’ve probably received a letter in the mail from your banking institution by now, directing you to opt in before it’s too late.  Sign on the dotted line and allow them to charge hefty fee’s for the privilege of them covering your bounced checks.

For months, I’ve been hearing about all the new restrictions on overdraft fees and how it will lead to “the end of free checking” as banks seek to replace the billions in fees they’re about to lose.

It’s true that banks are adjusting their fee structures, and you’ll need to pay attention to the changes, or your wallet could suffer. But you’re going to have a lot of options to avoid the fees.

Banks have begun to reassess their checking accounts because of a Federal Reserve rule that, as of July 1, which will require customers’ consent before they’re covered by so-called courtesy overdraft. That’s the kind of overdraft program that allows people to spend more than they have in their accounts and then clocks them $35 or so per transaction for the privilege.

Banks raked in $38.5 billion in overdraft fees last year, while the new restrictions will decrease the fee income by $2 billion this year.

Sample Message

Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you,” the message, emblazoned in large red type, warns. “If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with “even in an emergency” underlined for emphasis.

What is Overdraft Protection?

What should you do

  • Look out for the letters in the mail to get you to opt in
  • Just Say “NO”
  • Get true overdraft protection that links to a savings, credit card or a line of credit

Facts

  • Several institutions give this option at the ATM as a trick to encourage overspending
  • Moderate- and low-income customers paid the bulk of these fees, and one-quarter of the charges were paid by people over 55.
  • Currently, about half of all checking accounts are unprofitable (cost about $250-$300 to maintain a checking account annually.  Most profitable keep 3K balance or have 10 overdrafts a year.
  • Some banks will try to chase you away with onerous fees

Do The Math

  • If you average 3 overdraft fees a month @ $35, you will pay $1,260 a year in fees.
  • A $2 coffee turns into a $37 coffee

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