New overdraft rules take effect today for existing accounts

Last month, banks had to stop automatically activating debit card overdraft protection for new accounts, a practice which they have been doing for years.

Today, August 15th, banks must stop providing debit card overdraft protection for existing accounts unless customers explicitly opt-in to this service.

But this doesn’t apply to every kind of transaction.  The following types of transaction can be used to take money out of your checking account:

• Writing a check.

• Authorizing an electronic transaction using your account number, or the bank’s online bill payment service.

• Setting up repeat payments with your debit account number for something like a cell phone bill or a gym membership.

• Withdrawing money from an ATM.

• Using a debit card at places like stores, restaurants and gas stations.

Only the last two, ATM withdrawls and debit card purchases are covered by the new overdraft protection rules.  If you do not opt in to overdrafts (AND YOU SHOULD NOT), then ATM and debit card purchases may be rejected and no fee will be charged.

But, importantly, the new law doesn’t affect checks or electronic transactions; fees can still be charged on those if the account has insufficient funds.

Very importantly, this means payment services like PayPal.  You can still rack up an overdraft charge if you try and pay for something with PayPal and you have insufficient funds.  Unfortunately, most people would expect that this would work just like using a debit card, but it will not.  Banks can still charge you an overdraft fee for this, so be careful.

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