Bank of America and Chase Announce Limited Changes to Overdraft Policies

In response to increasing consumer ire and legislative attention from Congress, Bank of America and Chase have recently announced some upcoming changes to their overdraft policies. Here are some of the highlights for each:

Bank of America

1. B of A will no longer charge an overdraft fee when a customer's account is overdrawn by less than $10 in one day. (However, the balance must be restored to the account within 5 days to avoid the $35 fee).
   
2. They plan to limit to four (4) the number of times that an account can be charged an overdraft fee in one day. (note: still, that's a maximum of $140/day in overdraft fees if you're not careful!).
3. Customers will be allowed to opt out of overdraft protection programs. In that case, pending charges will be denied at the register.
   

Chase:

1. Starting sometime before March 31, 2010, banks will make all overdraft protection programs opt-in (rather than opt-out), which means consumers will be made more aware of the financial implications of the program and whether it is right for them.
2. Chase will also stop practicing "transaction stacking," whereby they process charges in the order of largest to smallest, thereby increasing the chances for paying overdraft fees. Moving forward, they will process transactions in the order that they are made.
   
3. The bank will not charge an overdraft fee if an account is overdrawn by $5 or less.

All of these changes may be too little, too late, however. For most types of transactions that currently result in overdraft fees, they will be unaffected by the new rules, meaning customers will still be out billions of dollars collectively in overdraft fees.

Of course, the very best way to avoid this entire mess is to find a bank that does not charge overdraft fees - even when you overdraw your account. You can find a list of banks that do not charge overdraft fees at: http://www.escape-overdraft-fees.com/.

For more on how to avoid overdraft fees,: http://www.squidoo.com/banks-without-overdraft-fees/.

Tips on How to Avoid Abusive Overdraft Charges by Banks

A bank overdraft is simply what happens when you charge too much on your debit or checking account-linked credit card - or when you write too large of a check - such that the payable amount exceeds the available balance in your account. While some people may overdraft by hundreds of dollars, most overdrafts that occur on a daily basis all across the country are for $5-$50. In other words, most people don't miss by much.

Now, in the old days (over 10 years ago), if a bank detected a potential overdraft, they would simply deny the incoming charge. If a check was written, the bank would reject the check, sending it back to the issuing bank. At the same time, the bank my charge a fee for doing so.



Fast forward to today. Most banks have implemented something called overdraft protection. This is an opt-out service which one enrolls in with most new checking accounts. Of course, by opt-out, it means that you are actually automatically enrolled in the service unless you choose to opt out. Most people, of course, just remain enrolled. After all: what could be wrong with an overdraft protection program? It has the word "protection" in it, doesn't it?

Here's what is wrong with it: the only thing that is really protected is banks' profits. With overdraft protection, when you overdraw your account, your bank will cover the difference for the few days it takes for you to pay them back. But, they charge you $30 or $35 for this service, which if equated to an interest charge would run into 1,000% or more for most overdraft situations.

Here are some tips for how to avoid abusive overdraft charges by banks:

1. Strive to keep a bit of padding in your account at all time. The more, the better, but $50 or so should do the trick.

2. Set up a savings account with the same bank and link it to your checking account. This will allow you to cover your checking account overdraft with the money in your savings account.

3. Consider switching to another bank that does not charge overdraft fees. There are some banks that will never charge you an overdraft fee, even when you overdraw the account!

For more on this topic, also see: http://www.squidoo.com/how-to-avoid-abusive-overdraft-charges-by-banks.