Not sure if you have overdraft service on your checking account? Now might be a good time to double-check, to avoid surprise fees.
When the pandemic hit, regulators encouraged banks to be flexible about removing overdraft fees, which they charge when customers overspend their checking accounts. Unemployment remains high while federal aid is dwindling, and it may be a while before many consumers see additional financial relief for pandemic-related economic turmoil. While many banks said they continue to work, case by case, with customers facing financial hardship, institutions are under no requirement to refund penalties indefinitely.
Since about a third of people who overdraft view it as a way to borrow money when they are short of cash, they may incur more fees if money gets tight, said Nick Bourke, director of the consumer finance project at the Pew Charitable Trusts. So it's best to be prepared.
Here's what you need to know.
A 10-year-old federal rule requires banks to get their customers' express permission before charging a penalty for overspending, for most debit card purchases or ATM withdrawals. (Banks don't, however, need your consent to charge you a fee if you overdraw your account in other ways, like by bouncing a check.)
The "default" setting is no overdraft; the bank simply declines any transactions that would overdraw your account. This may prove embarrassing if you are at a store, but you won't owe a fee.
If you "opt in" to get overdraft coverage, however, the bank allows the purchase — in effect, it lends you the money — and charges a fee, typically about $35.
Customers often misunderstand their options, and banks contribute to the confusion. Last month, the federal Consumer Financial Protection Bureau reached a settlement with TD Bank over what the bureau said was the "illegal" enrollment of customers in its optional overdraft service.
The bureau found that the bank didn't get customers' consent before signing them up for the overdraft service. Employees also verbally gave customers "misleading or incomplete" information, such as suggesting the service was free, the bureau found.
In a statement, TD Bank said it did not admit any wrongdoing. The bank continues to offer its optional overdraft service, Debit Card Advance, saying it is "valued by customers."
The bureau had opened a review of the opt-in rule more than a year earlier. Dozens of industry groups argued for keeping the rule unchanged, while consumer advocates urged stronger protections. In March, the bureau cited a "continued need" for the rule and said it would not change.
