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Overdraft changes looming
STAFF/WIRE REPORT
youngstown
If you use your debit card to make a purchase this week, but don’t have sufficient funds for the transaction, your bank will likely cover the purchase, charging you a fee.
You may be saved the embarrassment of having your card denied, but that $1.99 cup of coffee could end up costing more than $40.
Starting next week, however, banks will no longer be able to provide this automatic overdraft coverage.
Under a new law that goes into effect Aug. 15, banks will be required to get account holders to consent, or “opt in,” to a service covering one-time debit-card purchases and withdrawals when there is not enough money in their account.
The rules have been in place for new customers since July 1.
The new Federal Reserve regulations are largely a response to rising consumer complaints about overdraft fees, claiming that many debit-card users believe they cannot spend more than what they have in their account.
Although overdraft programs differ between banking institutions, 86 percent of banks have some type of overdraft protection, charging a median fee of $27, according to a 2008 study by the Federal Deposit Insurance Corporation.
The study also found that 93 percent of all overdraft charges come from just 14 percent of bank customers.
As debit-card usage has increased, these fees have become a major source of revenue for many institutions.
Local banks have been informing customers about the changes through mailings and phone calls, asking them to choose whether they want to opt-in to the program.
Farmers National Bank has been polling customers about overdraft protection for the past few months, said chief executive John Gulas.
“We are trying to make this an interactive campaign with our customers,” Gulas said. “We want to know what the customers want.”
Gulas said the majority of customers who already use overdraft protection will continue with the coverage.
Only 25 percent of Farmers’ customers had decided whether to opt-in, he said.
Some customers might want overdraft protection for emergencies, or to cover short-term deficits in their bank accounts, said Robert Steele, vice president of retail banking for Youngstown’s Home Savings & Loan. Other account holders might decide to opt-in to avoid the embarrassment of having their card denied, he said.
“It is a personal decision,” he said. “There are more than a number of customers who use it as kind of a cushion, and there are many who don’t want it.”
About a third of the bank’s customers have decided to opt-in so far, Steele said.
He conceded that the loss of overdraft fees will affect Home Savings & Loan’s retail banking income.
Community banks will have a hard time making up these losses by increasing other retail banking fees, Steele said.
Larger banks are expected to offset the profit loss with other consumer charges, such as increased credit-card fees and checking-account charges.