Not sure if your checking account has an overdraft service? Now may be a good time to double-check to avoid surprise fees.
When the pandemic hit Regulators encouraged banks to be flexible in eliminating overdraft fees they charge when customers overuse their checking accounts. And many people could reach an emergency relief of rent and ancillary costs.
“A lot of bills didn’t come due,” said Nick Bourke, director of the consumer finance project at Pew Charitable Trusts.
But unemployment stays high as federal aid dwindles and it may be a while before many consumers see additional financial relief for pandemic-related economic turbulence. While many banks say they continue to operate on a case-by-case basis and clients face financial difficulties, institutions do not have to repay the fines indefinitely.
Since about a third of overdrafts see it as a way to borrow money when they run out of money, Bourke said they could incur more fees if they run out of money. So it is best to be prepared.
Here’s what you need to know:
A 10 year old Federal rule Banks must obtain the express permission of their customers before issuing a penalty for over-spending, most debit card purchases, or A.T.M. Withdrawals. (However, banks do not need your consent to charge you for any other means of overdrawing your account, such as cashing a check.)
The default setting is no overdraft. The bank will simply refuse any transaction that would overdraw your account. This can be embarrassing if you’re in a store but don’t owe a fee.
However, when you sign up for overdraft coverage, the bank allows the purchase – in fact, it lends you the money – and charges a fee, usually around $ 35. If you continue to spend money after your account balance drops below zero, the bank may charge an overdraft fee for every transaction, so the fees can add up quickly. Big banks According to the Center for Responsible Lending, a nonprofit advocacy group, overdraft revenues of more than $ 11 billion were generated in 2019.
However, customers often get their options wrong and banks add to the confusion. Last week the Federal Office for Consumer Financial Protection did one settlement with TD Bank about what the bureau said was “illegally” registering customers in its optional overdraft service.
The bureau found that the bank had not received customer approval before signing up for the overdraft service and sometimes printed out forms for them to sign with the “opt-in” box already checked. Employees also verbally gave customers “misleading or incomplete” information, such as the advice that the service was free, the office noted.
As part of the settlement, the bank agreed to pay around $ 97 million to more than 1.4 million customers who signed up for the service from 2014 to 2018. She also agreed to pay a civil fine of $ 25 million. The bank, based in Cherry Hill, New Jersey, has around 1,250 branches in the eastern United States.
In one statementTD Bank said it had not admitted any wrongdoing. The bank said it did not agree with the bureau’s conclusions but had “fully cooperated” to resolve the matter and “remained focused on serving our clients’ needs”.
The bank continues to offer its optional overdraft service, Debit Card Advance. She is valued by customers and helps them avoid declined transactions due to insufficient funds.
The office had opened one review the opt-in rule more than a year earlier. Dozens of banks and industry groups advocated leaving the rule unchanged, while consumer advocates called for stronger protection. in the MarchThe office cited “an ongoing need” for the rule and said it would not change.
Here are some questions and answers about the overdraft service:
Are banks waiving overdraft fees because of the pandemic?
Some banks automatically waived overdraft fees while the economy was closing, in part to avoid a federal government Economic fund deducted from consumer accounts. (New York hired banks to temporarily waive penalties.) After states reopen, most banks will collect the fees and consider refunds on a case-by-case basis after customers contact the bank.
“It’s definitely worth asking the bank to waive the fee,” said Rebecca Borné, senior policy counsel at the Center for Responsible Lending.
Policies vary by bank and depend on the customer’s circumstances American Bankers Association said in a statement sent via email. “The best advice for anyone under financial stress is to reach out to your bank and let them know what’s happening,” he added.
How can I avoid overdraft fees?
Consumer advocates advise against choosing overdraft coverage to avoid surprise fees. “Make sure you’re not signed in,” said Lauren Saunders, assistant director of the National Consumer Law Center.
If you choose to use the service, you can lower fees by linking your checking account to a line of credit, savings account, or credit card. If you spend too much, money will be withdrawn from your secured account and you will be charged a fee, which is usually less than an overdraft fee. Ms. Saunders also suggested signing up for low balance notifications via SMS or email and using the bank’s mobile app so you can quickly check your balance on your phone.
Do banks offer accounts that do not allow overdrafts at all?
Citibank, Bank of America and chase All offer accounts that do not allow overdrafts (including checks as the accounts do not allow the holders to write them). Wells Fargo said it would introduce accounts with limited or no overdrafts in 2021. Several start-up financial firms are also offering no overdraft Accounts.