Steffanie Rivers

Some banks and credit unions are about to see a big drop in their profits after July 1st. That’s the day they will be required to get permission from new customers before they are charged an overdraft fee to cover debit card and ATM overdrafts. On August 15th existing customers will get the same benefit, but those who don’t sign up for overdraft protection will pay as much as $38 in overdraft charges per transaction.

A FDIC study shows that half of all overdrafts occur at ATMs or through debit card transactions which tend to be for smaller dollar amounts for items most people don’t need.

The fact that overdraft-related fees bring in more than $17 billion each year to banks and credit unions indicates some people have a problem with simple math and need help staying in the black. If you’re one of those people, don’t wait for your bank to offer the service to you. Be proactive and sign up as soon as you can.

Overdraft protection means the bank will allow customers to overdraw funds from their account by covering debit card purchases or ATM withdrawals with money from another account or by posting a negative account balance without penalties. But even if purchases are covered it could create a shell game that makes it hard to track your money.

It’s a step in the right direction for the banking industry that has gotten drunk off of overdraft fees, but it creates a fiduciary relationship between banks and their customers that ignores the root of the problem: People should be more responsible with their money and not spend every dime that comes their way.

Account holders at Bank of America said they wanted to handle their own overdraft issues by linking their checking to another of their existing accounts. So if you’re with BoA and you haven’t done the link yourself or you only have that one account, your next purchase might be declined if there are insuffifcient funds in it.

This kind of tough love can be embarassing – if you’re the kind of person who cares what strangers standing behind you in line think about you. But if that’s what it takes for consumers to realize that money is finite I say it’s a step in the right direction.

Before you get the idea that the bank is your friend realize that overdraft fees are the second part of a one-two punch that has kept consumers in the red. Banks still have the option of processing charges to your account in any order they want. Most of them choose to deduct charges from the largest to the smallest. So if there’s not enough money to cover all deductions there’s likely to be more overdraft fees applied.

Don’t expect banks to give up this control anytime soon, if ever. And since profits from overdraft fees will fall, expect banks and credit unions to come up with new fees or raise the amount of other existing fees to make up the difference.

Steffanie is a freelance journalist living in the Dallas, Texas metroplex. Send questions, comments or requests for speaking engagements to Steffanie at [email protected]. And see the video version of her journal at youtube.com/steffanierivers.