Opting In For Protection

Published 7:41 pm Thursday, June 3, 2010

New federal regulations on debit cards will require users tomake their own choice about overdraft protection, either givingtheir cards unstoppable purchasing power for a fee or making themuseless when the money runs out.

Brookhaven State Bank President Stan Foster said his institutionand others are putting out the word about new Regulation E rules,which require card users to opt-in to continue overdraft protection- a service offered at most banks that will approve debittransactions even if a person’s account doesn’t have the funds tocover the transaction.

While overdraft protection is active on most bank accounts, thepolicy will disappear by Aug. 15 for existing accounts and by July1 for new accounts if bank customers don’t specifically let theirbanks know they want to opt-in and continue the service. Ifconsumers don’t opt-in, their debit cards will be denied forinsufficient funds, much like a maxed-out credit card, Fostersaid.

“What Regulation E is requiring banks to do is have theircustomers provide permission to access their overdraft forpoint-of-sale debit transactions,” he said. “If you don’t opt-in,you default to opting out. If people want to continue to useoverdraft protection, they need to make sure they make adecision.”

Checks and automatic withdrawals are not affected by the newregulations, and will still be honored by banks – with a fee iffunds are insufficient.

Mark Lewis, Brookhaven president of Trustmark National Bank,said the new regulations are reactive to what some bankers call the”$35 pack of gum,” where accounts with insufficient funds arecharged big overdraft fees for making small purchases. People whodon’t keep track of their expenses have turned the $35 pack of guminto a multi-million per year businesses for banks.

“In today’s world, a lot of young people like to use debit cardsinstead of checks, so they go and swipe their card at a conveniencestore for a $1 pack of gum. They don’t have the money in theiraccount, but the bank will pay it,” Lewis said. “That has createdsome significant overdraft charges. The federal regulations seem tobe reactive instead of proactive, so the reaction from Washingtonhas been, ‘Let’s make the banks inform their customers.'”

Lewis called the new regulations a double-edged sword. Whilethose who opt-out of overdraft protection will never have to paydown a stack of overdraft charges accumulated from inattentivespending, they also won’t have a safety net in a tight spot.

“You go to the gas station in Memphis or St. Louis, swipe yourcard and it doesn’t work, so you say, ‘Will you take a check?’ Whatis the gas station going to say?” he said. “An emergency situationcould be very awkward for the customer.”

Bank of Brookhaven Vice President Robert Massengill said federalofficials have churned out the new regulations to give consumersmore choice in their banking affairs, but the new rules may bemisguided.

“Quite honestly, consumers use this product, they appreciate it.They don’t want to have to deal with a returned check up on thewall at El Sombrero,” he said. “It doesn’t cost you a dime unlessyou use it, that’s what Washington doesn’t understand.”