Time to Choose – Declined Card or Overdraft Fee?

Aug. 15 is fast approaching – and with it a big decision by bank customers whether to “opt in or opt out” of bank overdraft programs.

On that date, the Federal Deposit Insurance Corp.’s new “Regulation E” program, which requires banks to get the OK from customers to provide overdraft protection on nonrecurring debit card transactions and ATM withdrawals, is set to launch.

Some say regulation E is a long time coming. “Often people use their debit card without knowing how much money is in their accounts,” says David Garber, financial center manager with Fifth Third Bank. “Under Regulation E, if you haven’t opted in – and there’s no money in your account – your transaction will be denied, rather than going through and you paying an overdraft fee.”

As far as deciding to opt in or opt out, it’s increasingly apparent that a majority of bank customers can’t make up their minds. According to a June study from Neilson Co. of 2,703 financial consumers, 26% would opt in to an overdraft program, 22% would not and 39% were undecided. Furthermore, bank customers who said they would opt in were more likely to have had an overdraft in the last year. According to Neilson, consumers who were undecided had never heard of the regulation or didn’t know much about it.

Neilson also has some interesting particulars from the survey. Key reasons participants cited for for opting in include:

• They would like to be covered in case of an emergency or an unexpected expense.
• They have multiple users on their card and don’t always know their balance.
• They want to avoid embarrassment at check-out.

Survey respondents who say they would either opt out or are undecided cited these as their most prominent reasons:

• They don’t have enough information about the regulation.
• They are still thinking about it.
• They had no idea there was an opt-in/opt-out option.

Check out the entire survey here

Fifth Third’s Garber says that, to make an informed decision, you should evaluate your spending habits. Here’s his list of “pros and cons” for deciding either way.

Opting in: If you want the flexibility of going over your available balance, without having transactions denied, you may prefer this option.

Pro: You can avoid the embarrassment of having your debit card denied if you exceed your available balance.

Con: You will have to pay an overdraft fee if you go over your balance limit. At most financial organizations, this fee ranges between $10 and $40.

Opting out: If you want to avoid paying any additional fees or don’t anticipate going over your account balance limit, you may prefer this option.

Pro: You can avoid paying overdraft fees for everyday debit card or ATM transaction if you go over your available balance.

Con: You won’t have the option of instantly exceeding your available balance in the event of an emergency.

Circle the date – Aug. 15 – and be prepared to declare your “opting” status. What will you decide?