The era of the $35 cup of coffee has come to an end, for most.
Unless a consumer chooses to opt-in for overdraft protection, their ATM and debit purchases will be declined if an account has insufficient funds. Prior to Sunday, banks could automatically enroll their customers in the service, which covers the point-of-sale transaction but can result in steep penalties. Shoppers at the counter might turn red with embarrassment when their purchase is refused, but the alternative is for their account to go further into the red -- with fees up to $35 for each swipe of the card.
When added to the cost of a 99-cent taco, $35.99 doesn't exactly fit on the value menu. Just last week, a federal judge accused Wells Fargo of "profiteering" by employing overdraft policies that led customers to pay multiple fees. The bank was ordered to return $203 million to its customers. However, Wells Fargo intends to appeal and several other banks have indicated that they will not change their policy of processing the day's largest transactions first (as opposed to chronological order), which increases the likelihood of multiple small transactions incurring overdraft fees.
But if customers don't have overdraft protection anymore, the banks can't collect.
Banks were prohibited from automatically adding new customers to overdraft protection programs starting on July 1. The latest Federal Reserve rule goes a step further by dropping the service for existing customers who never asked for it. Newsweek reports that banks have aggressively encouraged their customers to stay enrolled:
In the days leading up to Sunday, nearly anyone with a bank account has likely received mailings, emails, phone calls, ATM screen prompts and an in-branch hard-sell to keep them in these programs, a lucrative source of revenue for banks of all sizes. Don't expect the cajoling to stop any time soon, as banks keep up a full-court press post deadline to reclaim those who opted out, either by choice or inaction.
In July, the National Foundation for Credit Counseling did an online survey (PDF) which found that 26% of their 2,089 respondents planned to opt-in for the protection.
For the remaining three-quarters of those wielding plastic at the checkout line, there are plenty of other ways to manage your finances. Among the NFCC's suggested alternatives to overdraft protection:
- Keep your check register current, recording all withdrawals and balancing often. Be sure to notate all ATM and debit card transactions along with any paper checks written on your account.
- Link your checking account to your savings account. In case of an overdraft, the money will be automatically taken from your savings with little or no fee attached.
- Pad your checking account by carrying a balance that you will not likely exceed. Most people spend a similar amount each month. If possible, keep an extra100 in your checking account to cover unplanned expenses.
- Utilize technology. If your financial institution offers it, sign up for email or text alerts that notify you when your balance is low.
- Reach out to your creditors. If payment due dates do not coincide with paydays, contact your creditor and request a due date change. You may have to pay a little extra interest to cover the gap for the first month, but over time this step should help to organize your finances.
- Get help managing your finances. Reach out to an NFCC Member Agency by going online to www.DebtAdvice.org, or to be automatically connected to the Agency closest to you, call (800) 388-2227. For assistance in Spanish dial (800) 682-9832.
CNN Money took a look at whether the protection could be useful for consumers, and also has some ideas on how to avoid problems with overdrafts and fees.