How Chase, BofA will handle debit overdrafts

By Becky Yerak
Posted June 22, 2010 at 2:35 p.m.

Chicago’s two biggest banks have diverging strategies on how to treat customers who overdraw their accounts using ATM and debit cards.

Starting July 1 for new customers and Aug. 15 for existing ones, banks need a consumer’s approval to process everyday debit and ATM card transactions that exceed the account balance. In the past, banks often have covered overdrafts, but socked the account holder with a $20 or $30 fee.

Market share leader Chase has been sending letters to customers warning them that, if they want overdraft coverage for ATM or debit cards, they must tell the bank.

“We want to give customers a choice,” spokeswoman Christine Holevas said.

If the consumer doesn’t sign up for debit-card overdraft coverage and doesn’t have enough money to cover the bill at a restaurant, the transaction will be denied.

If they opt into the debit overdraft program, Chase will cover a transaction, charging the consumer a $34 fee.

Consumers who opt into the program but never use it pay no fee. And no Chase customer is charged a fee if they’re overdrawn by less than $5.

The debit card overdraft coverage doesn’t apply to some payment methods, including checks, online payments or recurring debit transactions, such as gym memberships.

“Those transactions can still overdraw the account and result in non-sufficient fund and overdraft fees, no matter a customer’s decision on debit card overdraft coverage,” Holevas said. “The decision applies to everyday consumer debit card transactions.”

Meanwhile, Bank of America has ended its overdraft program for debit and ATM transactions.

“We’re responding to the overwhelming majority of customers who say, ‘Don’t let me spend money I don’t have,’ ” BofA spokeswoman Diane Wagner said.

Tom Feltner, vice president of Woodstock Institute, a nonprofit group that looks at fair lending practices, said forcing banks to seek customers’ approval for overdraft programs is a good first step.

But “we support Bank of America’s decision to eliminate overdraft on debit-card transactions,” Feltner said. “Debit transactions can happen quickly and are more likely to trigger spiraling overdraft fees.”

Greg McBride, senior financial analyst for finance Web site, said 75 percent of consumers don’t overdraw their accounts with ATM or debit cards and probably don’t want to opt in; if their debit card is denied, they probably have access to cash or credit.

Another 10  to 15 percent occasionally overdraw but still have options.

The rest are the least likely to have other payment options.

They might want debit-card overdraft protection, or they might be more vigilant about their balances, he said.

“In the case of a hot dog and a Slurpee, no one wants to pay $30 if they’re overdrawn,” he said. “But what if you’re 300 miles from home and your car breaks down and you have no other options?”

The best defense, he said, is to link a checking and a savings account.

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  1. Andrew Metcalfe June 22, 2010 at 7:05 pm

    The suggestion that a linked checking and savings account is a good solution is absurd. Bank Of America still charges $30 for an overdraft, even if you’ve got linked accounts! This is better than the $50 fee if you don’t have linked accounts – but it’s still highway robbery!

    The best defense is to deny the permission for overdraft, and only spend the money that you have! It’s a simple concept, but a good one.

    It’s terribly irresponsible for the Tribune to suggest otherwise. Shame on you! How much did the banks pay you to suggest this?

    Thank god for the Credit Card Reform Act. Unlike this author of this article, they’re looking out for the average Joe.

    _Am (banking consultant, big 5)

  2. Ray Denonville June 22, 2010 at 7:09 pm

    US Bankers are a bunch of criminals that need to be dealt with through real regulation like the Banks in Canada that needed no bailouts through the financial meltdown.