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CARD Act Review: Debit Card Rules

Monday, August 16th, 2010

The Credit CARD Act, passed last year, will take full effect later this month (August 22), so there’s no better time to review the changes you can expect to see when that deadline arrives. Here’s what to look out for from your debit card and bank.

The New Normal: No Overdraft Coverage

Thanks to provisions in the CARD Act, banks must now offer overdraft protection (also known as abusive overdraft loans) to consumers on an opt-in basis, meaning that you won’t get this “service” unless you specifically sign up for it. Specifically:

  • Old way = Over-limit purchases go through, cost money. Before the new restrictions, most banks charged overdraft fees automatically for transactions that exceeded a customer’s limit. A customer could easily rack up hundreds of dollars in fees in a single day without realizing it, because every over-limit purchase would trigger a separate fee.
  • New way = Customers choose what protection they want. Now, you can decide whether or not you want banks to “cover” you on over-limit purchases and hit you with a fee for that “service.” For many customers, it makes more sense to have a transaction declined and avoid the fee.

But, as this Consumerist.com article points out, some banks are pushing hard for consumers to sign up for overdraft protection—and it’s no wonder, since banks make billions of dollars in fees from such “services.”

So how can you avoid paying fees for a service you may not want? Try these tips, which can help you keep track of your money (and avoid costly overdraft loans).

  • Carry some cash: Some analysts suggest paying cash for any purchase under $10. That way, even if you opt in to overdraft protection, you won’t get dinged with a hefty fee for a tiny purchase.
  • Pay with your credit card: If you’re not the cash-toting type, choose credit instead of debit. But treat your credit card like a debit card—pay the balance in full each month, or you’ll end up paying so much in interest any overdraft savings might be canceled out.
  • Know the loopholes: The overdraft protection opt-in does not apply to all transactions—checks and recurring debit card deductions (like automatic bill payments) may still be subject to overdraft fees, depending on your bank’s policy. If you aren’t sure what that policy is, call your bank’s customer service department to find out.
  • Keep track of your account: Whether you use a checkbook registry or log on to view your account information online daily, perhaps the best way to make sure you don’t go over your limits is to keep tabs on your money so you don’t forget about purchases and spend money you don’t actually have.

For a more detailed look at the new debit card rules, check out the Federal Reserve’s summary.

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