Last month I gone and done it again. I got hit with an overdraft fee.
Sure, nobody at the restaurant knew. But I sure did, when I got dinged more than $20 for not knowing exactly how much I had in my checking account. I forgot about a $500 payment I made that didn’t exactly go through yet.
All that’s about to change though. Come July 1, new regulations will keep banks from automatically enrolling consumers into overdraft protection plans for their bank accounts.
It means the bank won’t allow you to go negative. It means that even though you’ll be denied the purchase at the point of sale, you’ll be spared any extra charges for forgetting how much you had in your account like I did.
"The local banks have already started ensuring that customers understand that unless they opt in for the services, overdrafts that are caused by ATM withdrawals or using debit cards at the point of sale will no longer be honored," said Gary Fujitani, executive director of the Hawaii Bankers Association.
For years, automated overdraft services enabled financial institutions to reduce the cost of manually reviewing individual items, and also ensured that all customers were treated consistently when it came to overdraft payments.
The Federal Reserve changed the overdraft rules to protect consumers from the sneaky charges. Customers are often dinged more than $20 or $30 for withdrawals that go over by a few dollars or cents.
"With respect to debit card transactions in particular, the amount of fees assessed may substantially exceed the amount withdrawn," according to the Federal Reserve’s policy change. "Given the costs associated with overdraft services in these circumstances, consumers may prefer to have these transactions declined."
The new rule doesn’t cover written checks, or automatic bill payments that go into your account.
Americans pay $23.7 billion a year in overdraft fees, according to the Center for Responsible Lending. The Federal Deposit Insurance Corp. says that 86 percent of banks operate at least one formal overdraft program.
That’s a lot of money they stand to lose annually. Already there’s talk about the imminent end of free checking accounts at mainland banks. The Wall Street Journal reported last week that Bank of America will lose $600 million in revenue this year because of the overdraft rule change. To generate new revenue, Bank of America will begin testing pricing models for basic accounts.
That approach probably won’t happen to Hawaii in the near future, Fujitani said.
"I can’t imagine that it will," Fujitani said. "This is a very competitive environment here. I like to think that most banks will simply adapt to these new rules. It’s not like a tremendous loss of revenue here."
Overdraft policies were put into place to protect consumers from embarrassing episodes of being left with the bill and being unable to pay.
"It’s really more of a consumer control issue," Fujitani said. "I believe it is the right thing to do to allow consumers to take control."
But there are ways to ensure that you avoid overdrawing your account.
Many banks allow customers to link their checking account to another account, such as a savings account. That way, in the event that the checking account becomes overdrawn, the bank would instead take cash from the savings account.
For qualified customers, you also could consider a line of credit.
Of course, the easiest way to avoid overdrafts is to keep track of your balance. Remember to record ATM and debit card transactions. Even though there won’t be any more "gotcha" fees, you’ll definitely want to opt in good spending habits.