Vision Credit Education, Inc.

You may have seen signs posted or information on your bank or credit union’s website about not being left out without overdraft protection. What is this all about?

Before August 15, 2010, financial institutions could automatically cover your expenses when you used your debit card and spent more than your remaining balance. For years consumers have been clamoring to stop this practice, wanting those debit charges to simply be denied. If you attempt to overstep your lending limit with a credit card, they will deny the charge…many consumers wanted the same to happen with debit cards as well.

The problem is not with the protection (which in essence turned the debit card into a credit card in many cases, or else simply withdrew the needed money from a linked savings account) but with the fees associated with it. At about $30 a pop, a day of shopping could turn into a $150 ordeal…on top of the money you were already spending (that you thought you had).

So should you opt-in like your bank or credit union wants? They do make it sound good…like you will be left out if you do not join. We all like to join in. However, they have their own profits to consider, and fees are a big area where they see profit.

The new Federal Reserve law was designed to protect consumers…and it will, if you do not opt-in.

How should the rule change how you treat your debit card? If you regularly use your debit card, you need to always be aware of your account balance, so you won’t face being denied at the register. This is a good practice regardless, and helps you keep a handle on your spending.

If you are unsure whether you have enough in your account to cover your expenses, either choose wisely to not purchase the item, or put it on a credit card. But if you put it on a credit card make sure you will shortly have the money in order to pay the balance in full. Getting charged interest and fees by the credit card company is no more in your interest than paying fees to your financial institution!

So while the financial institutions spin it to sound like they are offering you protection, what they are really asking you to do is give them permission to charge you fees. The good thing is that to opt out, you simply have to do nothing.