Credit Unions Asking Members to Opt-In to Overdraft Protection
by STAFF WRITER Published June 21, 2010 Credit Unions Online
New rules for how your credit union handles overdraft fees charged to members begin soon. You have probably already received something in the mail from your credit union asking you to “opt-in” or “opt-out” of overdraft protection services, including associated fees in the event you overdraw your checking (share draft) account.
This is likely a service you have already been getting from your credit union. However, even if you had this service in the past, your credit union requires your permission to continue providing you with overdraft protection.
The new overdraft regulations are the result of banking reform measures. Credit Unions are now required to get their members explicit permission to “cover” one-time debit card and ATM transactions when a member's account lacks sufficient funds. Overdraft protection can help you avoid inconvenience and embarrassment caused by insufficient funds when using your debit card, but can potentially be costly as many credit unions charge overdraft fees of $20 or more for each transaction.
The new rules require credit unions to obtain explicit permission from you to provide this service. The deadline for credit unions to implement the opt-in process for new members is July 1, 2010 and August 15, 2010 for existing members.
Credit Union members should be aware that the new rules only apply to “one-time” debit card and ATM transactions, and do not apply to checks, ACH (Automated Clearing House) transactions, such as scheduled payments using the credit union’s bill-payer service, or recurring debit card transactions.
So what are the benefits of overdraft protection?
The benefits of overdraft protection include convenience, lack of embarrassment, and a safety net. The main disadvantage of overdraft protection is that overdrafts fees from your credit union could be costly.
There are ways to maximize the benefits of overdraft protection, while minimizing the disadvantages. The easiest and least expensive way to minimize overdraft fees is to link your checking account to a savings account or line of credit. By linking a savings account or line of credit to your checking account, any overdrafts will be transferred from your savings account or line of credit for a minimal fee. This fee, typically around $5, is a great way to have the convenience without high overdraft fees.
Whether you want to opt-in or opt-out, you must let your credit union known by August 15, 2010 (if you are a current member) or you will automatically opt-out of overdraft protection. If you have opted out (or not notified the credit union) and you have insufficient funds when making a purchase with your debit card at a store or ATM, it will likely be declined. Since August 15, 2010 is a Sunday, notify your credit union no later than Friday, August 13, 2010 if you want to opt-in.
How can I avoid high overdraft fees and still have convenience?
Here are a few suggestions from Credit Unions Online for avoiding potentially expensive account overdrafts, without the lack of convenience:
First off, contact your credit union before the deadline and opt-in to account overdraft protection for that rare occasion when you might really need it. If you never overdraw your account, you will not incur any fees.
Set a minimum amount of money to remain in your account, like $100 or $200, and treat that amount as the bottom limit. This will provide a safety net once it becomes a habit.
Track your account balances daily. Your credit union likely has a website that allows you to see what is going with your account, so sign up for online account access if you haven't already done so.
Sign up for “low-balance” alerts, if you credit union offers this service. These alerts can let you know when your account gets below a certain level so you will not be surprised.
Link your checking account to a savings account or line of credit, which should significantly reduce any fees if you overdraw your checking account.
When you opt-in, your decision is not forever. You always have the option to go to your credit union and tell them you changed your mind and remove overdraft protection from your account.