Once upon a time, overdraft fee legislation was not needed.
Back in the good old days when life moved much slower, you opened a checking account you were automatically signed up for overdraft protection as a courtesy.
This courtesy though, comes along with a fee.
At the time this courtesy was initiated many did not question it. Most people balanced their checkbooks, keep extra cash in their accounts, making overdrafts a rare occasion.
Somewhere in time, between then and now life got much crazier, fast paced and in need of more convenient ways to access cash. The debit card came along and ATM use skyrocketed. That courtesy became a common feature and money maker for many banks.
When the overdraft fee was started as a courtesy people just accepted it. Banks are businesses, when one is inconvenienced one expects compensation so it was acceptable.
Somewhere along the line it went from business to extortion!!! (If you ask me)
When overdraft protection was originally offered, it was most likely a low cost fee. It was initially offered in good faith with the idea that if your funds went low unintentionally, you would receive the convenience of being covered for the event, but a fee would be charged for this convenience.
Somewhere in the late 1990's up till 2006 the financial system was on an increasingly fast pace to find profits in whatever way it could.
The low cost overdraft fee became increasingly more expensive, as did many other everyday expenses in everyday life.
Some of the more unscrupulous banks caused situations where overdrafts were an easily occurring event!
Since the financial crisis in 2008, there has been much legislation and work in general to clean up the lax oversight in the banking industry.
The overdraft fee legislation is one little addition to the clean up.
The legislation requires new accounts opened to opt in to overdraft protection. If you don't have the overdraft protection you would risk the chance of being denied.
In the early days of this legislation, if you already had this protection in place, you were given a disclosure that it could be removed.
You were still automatically signed up for the overdraft on regular check writing and re-occurring monthly payments on a checking account, but purchases made with a debit card or withdrawals from an A.T.M. would be rejected unless you opt-in for the overdraft protection.
You have to give them permission to charge you that fee!!!
If you had a checking account in place back then, you most likely received literature about the overdraft fee legislation.
Most had said things like save yourself the embarrassment while at the checkout.
They didn't say ANYTHING about saving yourself from the added $25-35 fee for each occurrence.
If I get the embarrassment at the checkout, which is now a common feature due to many other current circumstances, (unusual activity on your card), I will sigh with relief that my account didn't get wiped by bank charges!
Opening a checking account recently, I found the bank offering the protection, but also letting me know that it was something I did not have to opt in to, and what the consequences would be. Much more transparent. This was at a Credit Union, not a regular bank though.
Of course if you are the kind that would be embarrassed by a rejection, you can opt in, but know this, there should be other cheaper alternatives.
One being, open a savings account that links to the checking account and automatically withdraws from it when you run short.
If they tell you this is not an option you need another bank!! Please!!!!
We all need to send a message to these institutions that we aren't going to take this any longer. If you consider it too much bother because you have to change direct deposit ect,ect,ect well things are just going to stay the same!!
Another possible solution is to open an overdraft line of credit (though someone pointed out this is a credit application so you make take a bit of a hit to your credit score for adding more credit).
I look at this overdraft fee legislation as the way things should have been from the beginning.
Put a plan in place for those times when overspending occurs, oversee your finances regularly and you won't need protection.
It's a good form of discipline we all can use.
If you don't watch your finances, you're going to pay!