You overdraw your bank account when you execute a transaction that exceeds the available balance in your account. Payment or purchase made by check, online bill payment, debit or ATM card, or electronic funds transfers are all subject to overdraft fees. Overdrafts that are honored by your bank can result in fees that, if not paid, can affect your credit rating and your future ability to obtain a bank account.
Overdraft Policies
When you have a checking account, the bank has the option of "covering" transactions you make if the transaction amount exceeds your account balance. The other option a bank has is to deny the transaction or deny the check for insufficient funds. If the bank "covers" the transaction it charges you a fee for doing so. Fees vary by bank. If the transaction is denied you are not charged a fee, unless you wrote a check. If a check is denied for insufficient funds the bank charges a set fee.
Overdraft Fees
Overdraft fees can be excessive particularly if your overdraft amount is a small sum, such as $1. Such an overdraft can generate a $30 fee depending on the published fee structure of your bank. In this case, you are $31 overdrawn, instead of $1 overdrawn. Some banks charge a fee each day you are overdrawn. "Covering" your transactions is known as overdraft protection. Some banks provided this as "courtesy" overdraft protection automatically. If you do not have overdraft protection, your electronic transactions are denied. If you do not have overdraft protection and your check bounces, you pay a fee to your bank, and your payee may also charge a fee, to cover the fee charged by his bank. If you have overdraft protection your transaction is paid, you overdraw your account and you are charged a fee for having the bank "cover" your transaction.
Implications
If you owe a bank money for any reason and default on the payments, the bank may send information to ChexSystems, which is a network of member banks who share information about the mishandling of checking and savings accounts. This information is used to determine whether or not to allow you to open a new account. Included in their report are your name, addresses and instances of mishandling your accounts, such as for non-sufficient funds. It also validates your Social Security number, lists inquiries initiated by you, for a loan for example, or those initiated by others, such as credit card companies. In addition, it lists any returned check to a retailer, with the retailer's information and that of the transaction; and the number of checks you have ordered.
Legislation
In 2010, new Federal Reserve rules went into effect to better regulate the overdraft practices of banks. Under the new regulations, banks can charge a $20 to $30 fee each time you overdraw your account, but can charge no other fees associated with the overdraft. Prior to the new regulations, banks could automatically enroll you in the overdraft protection program as a "courtesy", without your knowledge or permission. The new regulations require that you must notify the bank in writing that you wish to opt-in and agree to an overdraft charge, in order for the bank protect you from an overdraft and charge a fee for this protection. If you don't notify them, your debit and ATM transactions are denied if you have insufficient funds, without a fee. You can change your status at any time, in writing. This does not apply to checks or automatic bill payments. If you wish to opt-out of protection for these financial instruments, check with your bank. It may or may not be an option.
0 comments:
Post a Comment