New banking rule may cause headaches for debit card users
Wednesday, June 23, 2010
A small new banking regulation imposed by the Federal Reserve may cause headaches for customers using debit cards and the businesses that accept them.
The new rule modifies the Electronic Funds Transfer Act, also known as "Regulation E," requiring banks to have their customers choose to be covered by overdraft programs for their debit cards.
"Our main concern is for customers who may experience a declined transaction at the point of sale because they do not understand or are not informed of this change." said Bill Krestel, bank administration officer with Montgomery Bank.
Until now, most banks automatically enrolled customers in overdraft protection services, allowing them to spend more money than was in their account and charging them a fee for doing so.
"The goal of this law was to re-educate the public that you do have a choice," said Bonnie Roberts, operations manager at Bank of Missouri. "We want to let people know they have a choice and let them decide what is in their best interest."
Once the new law goes into effect, on July 1 for new accounts and Aug. 15 for existing ones, customers who don't opt in will be automatically opted out.
That means if there isn't enough money in an account to cover the purchase and the customer has not agreed to be charged overdraft fees, their debit card will be declined, Roberts said.
Both Montgomery Bank and Bank of Missouri has already sent mailings to customers to notify them that if they do not opt in they will no longer be able to spend over the available balances in their accounts.
Krestel said about 85 percent of those who have responded to Montgomery Bank's mailings have chosen to opt in and maintain their overdraft protection service.
Bank of America is taking a different approach and is not offering an opt-in alternative at all. Beginning in August the bank will decline debit card purchases when there is not enough money in the account to cover the cost.
"Customers say to us, 'Don't let me spend money I don't have.' We want to help customers avoid overdrafts by just not authorizing the debit card transactions," said Diane Wagner, spokeswoman for Bank of America, which has branches in Cape Girardeau and Jackson.
Bankers warn that local businesses could see an increase in declined purchases once the new law goes into effect.
"Be prepared to handle frustrated consumers whose everyday debit card purchases have now been declined at the check-out counter or tableside," Krestel said.
Several business owners approached by the Southeast Missourian were unaware of the coming change and declined to comment.
Bank of Missouri is adding information to its website to explain to its business account holders how the new law may affect them. It's also encouraging them to post signs about the changes, accept alternative forms of payment and accept multiple forms of partial payment for the same transaction, such as paying half in cash and placing the remaining portion on a debit card.
The new law concerning overdrafts applies only to debit card and ATM transactions. It does not include overdrafts by checks.
3427 William St., Cape Girardeau MO
2027 Broadway, Cape Girardeau, MO
2001 William St., Cape Girardeau MO