558 N. Main St., Prineville, OR 97754 | (541) 447-6205
On July 1, new Federal Reserve regulations took effect allowing bank customers to opt out of checking account overdraft protection in banks throughout the country.
Their last chance to make that decision, before it is made for them, is Sunday.
Overdraft protection allows customers to make debit card purchases without adequate funds for a fee of $20 to $35, depending on the bank. Up to this point, most banking customers were automatically enrolled in the program.
Under the new rules, customers are no longer automatically enrolled in an overdraft protection program, but instead are required to opt in or opt out of the service. If they do not choose one option or the other, the customer is automatically dropped from the service. Once they are dropped, any purchase they attempt to make that overdraws the account will be declined.
The new rules do not apply to check overdrafts or accounts overdrawn by automatic payments.
“With the new rules, they want the customer to affirmatively choose to participate,” said Oregon Bankers’ Association President Linda Navarro.
To help people avoid being dropped out of the service who would prefer to keep it, banks are trying to get the word out.
“The main thing we are trying to get across is awareness,” Navarro said.
According to Prineville U.S. Bank Teller Coordinator Matt Thompson, their bank has been sending out letters to customers, showing their options, and information about the opt-out option can be found at the U.S. Bank website.
Navarro is hoping that the outreach of banks, like US Bank, will not leave a large amount of customers wondering why their purchase was declined.
“I’m guessing the vast majority of customers have already heard from their banks,” she said, but went on to acknowledge that some customers have likely ignored the notices they have received.
As far as the new regulations go, Navarro suspects the federal reserve regulatory agency revamped the rules in response to a negative stigma the protection programs were receiving, especially since customers had no choice whether they enrolled or not.
“They were probably responding to concerns about consumers having a choice,” Navarro said. She acknowledged that the fees can become a problem for customers if they accumulate very many of them.
“You can get into trouble with overdrafts,” Navarro said, “and no bank wants that to happen.” For this reason, along with other potential individual concerns, she could see why customers would like to forego overdraft protection.
“I can certainly envision scenarios where people would choose to opt out,” Navarro said.
While that is the case, there appears to be a greater appreciation for the service among most customers than a disdain for it.
“There are a lot of customers — and studies validate this — that like having their purchases covered,” Navarro said. “Overdraft protection is something people have come to appreciate.”
Although the overdraft protection has been widely used so far, there is little concern that the opt-out choice will cut into bank income.
“This has never been considered a significant source of income,” Navarro said regarding overdraft fees. “The vast majority of banking, their focus remains on making loans and collecting the payments on those loans.”
For the most part, besides covering the costs associated with the service, Navarro said the fees are meant to stop people from spending what they don’t have.
“The fees are, in part, a deterrent,” she said.
In the end, the banks are doing their best to follow the new rules, while continuing to serve their customers.
“Our view,” said Navarro, “is we have got this new rule and we need to all work together.”
