Comments on: Credit Card and Debit Cards No Longer Have Automatic Overdraft and Over Limit Protection

By: Jeremy

Jeremy — Mon, 22 Feb 2010 22:09:53 +0000

Right, the debit card overdraft change isn’t part of the CARD Act, but many banks are making these changes anyway. Chase and Bank of America, which are two of the largest banks in the country, plus a bunch of local and regional banks, so tens of millions of people will have these changes applied to their debit cards and may not know it if they aren’t opening all of their mail. So, it still pays to make sure you understand what changes your bank is making instead of being caught by surprise.

By: LiveCheap.com

LiveCheap.com — Mon, 22 Feb 2010 21:41:04 +0000

This is one of the good features of the new law. But to be clear, it only applies to credit accounts not checking accounts that have a debit card feature. Chase may have decided to do it on all their debit accounts voluntarily, but the Credit Card Act does not require them to do anything for debit cards (based on my read of the original law since they are not “credit”).

Debit cards as we wrote in Debit Cards: Wolves in Sheep’s Clothing are going to increasingly be the source of income for banks using exactly the overdrafting technique. That’s why the banks are running all these promos for using debit cards. For debit cards, it can be far worse because of the multiple charges of $35 or more in a day for being a few dollars over.

The banks run an algorithm that pays the largest charges first therefore depleting your balance then paying the small charges last so that they produce the greatest number of overdrafts. So if you use debit for a $3 Starbucks in the morning, then a $7 lunch, and $5 for an afternoon snack and then swing by the grocery store to buy $100 worth of groceries at night but only have $80 in your account to start with. You will get hit with $140 in overdraft fees! Had they processed them sequentially, you would only get 1 $35 fee.

The best thing about the fees for the banks is they come with near zero risk. When you lend on a credit card, you have a potential loss of principal, but when you overdraft on your credit card, there isn’t much risk to the bank (especially if you have direct deposit of your paycheck).

By: Credit Girl

Credit Girl — Mon, 22 Feb 2010 20:32:34 +0000

Likewise Zach, I would much rather get declined than get charged a ridiculous fee of $35… Sometimes you just forget how much is in your checking account, and in that case I’d rather put back one item or so so that I am not charged by the bank.

By: Zach @College for 10k

Zach @College for 10k — Mon, 22 Feb 2010 17:55:52 +0000

This is very good news for us all!!

I am glad that we will now be able to use our cards without fear of getting charged $35.

I would rather get declined than get charged $35 per overdraft.

By: Honey

Honey — Mon, 22 Feb 2010 16:49:35 +0000

Yeah, for the second month in a row I went over my limit by less than $5. Sucky. Sadly, though, since it is a credit card then even if I send a payment in now it won’t post before the charges go through.

It’s a low-limit card that I use to buy groceries and pay off in full every month, it has decent rewards so I get a “free” gift card every 3 months or so, but obviously those rewards start looking a lot less free if I’m paying over-the-limit fees.

I am interested to see what happens this month, since the charges were made on 2/20 but probably won’t clear until after 2/22. Obviously the charge can’t be declined because it was made before CARD, but since they won’t clear until after CARD, will I get over-the-limit fees?

I’m going to definitely opt out of over-the-limit. I’d rather have my charge declined (on that card at least). I have another card with a $15K limit so I find it hard to imagine an emergency where I’d go over.