Understanding Reg E, Opt-In & The REAL Overdraft

I "grew up" in the banking/financial industry...working in a bank was my first real professional job. As the years went by I began to realize what a blessing that career path was.

I did not learn about managing a checking account or using credit the right way at home. As you can imagine I made mistakes financially in my early twenties because of that lack of knowledge. Thankfully I learned responsible money management through working in banking that helped me correct my mistakes!

As I moved among different locations and dealt with a diverse customer base I began to see that there were many people that didn't know how to balance a checkbook or live within the balance of their checkbook (a budget), let alone understand the rules and regulations that impacted them as a customer of a bank!

Recently Federal Regulators made a change to Regulation E...think E for Electronic transactions. Specifically the change will impact how you use your ATM and debit card for purchases in stores or at the gas pumps.

Basically, you need to tell them if you want to opt-in to have your transactions approved at the register regardless of whether or not you have the available balance in your account. If you do not opt-in then the transaction will be denied at the register if you do not have the available blance in your account.

Now, what I find is confusing to most is the wording they are required to use as bankers and the fact that they are not allowed to expand or explain pros or cons. What wording? They call it "overdraft on your debit card or ATM card."

Opting-in to this service is not overdraft protection. You will be charged an overdraft fee for each day your account remains in the negative. These fees are steep, some banks charge $35 per transaction that overdraws your account per day! Yes, I am aware that there is a cap on the amount they can charge in a day, but frankly who has an extra $115 a day that they can give to their bank in fees?

We all try to do a good job keeping our accounts balanced and sticking to our budgets, but we can make a mistake in our calculations. I know it can be embarrasing to have a transaction denied at the register, but look in to true overdraft protection options at your bank.

• Overdraft Savings: Link a savings account to your checking account. The bank will usually transfer in increments, maybe $25 or $50 to cover an overdraft in your checking account. Some banks will transfer only the exact amount you are overdrawn in your checking account too. The fee for this service is usually much less than an overdraft fee...$10 vs $35 for example! On a personal note, I was always weary of doing this...what if someone stole by debit card and drained my savings account by overdrafting my checking account? What we do is have a savings account with a small balance that meets the minimum required for that account at the bank to avoid a service charge ($300 balance).
• Overdraft Line Of Credit: This is another option, where the bank approves you for a line amount based on your credit (sometimes this is tied to the equity line available on your home or a credit card). As you overdraw your checking account they move money from the line to bring your checking account back to the positive. What I don't like about this product personally is that it can be too easy for people to rely on it like a credit card. You will be charged a fee for the transfer to your checking account and interest on the unpaid balance.

Discipline and a budget are high priorities when managing your checking account. Being educated about the options and real costs involved with my bank accounts works for me!

What do you think are the most common questions people have about banking and their accounts?

This post is linked with We Are THAT Family for Works For Me Wednesday. Check out the other helpful tips and information there!