Debit Card Holders Confused By New Rules

Last summer, the Federal Reserve implemented policies to protect consumers from unexpected charges. The new law required that a debit cardholder “opt in” to pay an overdraft fee if they swiped their debit card but did not have enough funds to cover the purchase in their account. The opt-in is in lieu of having the purchase declined. The premise of the new law passing was to protect consumers from paying big overdraft fees. It seems, however, that the opposite effect has occurred.

The Opt-In

Interestingly enough, when it came time to opt in to pay the fee or not to pay the fee, the majority of debit cardholders opted in. About 75% of debit cardholders chose to pay the fees over having their purchases declined. This opt-in has had the opposite effect that was expected. The overdraft fees prior to the law passing totaled $36.5 billion in 2010. While the final overdraft fees for 2011 are not in yet because it is only April, at the current pace, the fees are expected to reach $38.5 billion by the end of the year.

The Confusion

According to a report released by the Center for Responsible Living, a majority of debit cardholders are still confused. The report states that several banks "use scare tactics and other misleading practices to persuade consumers to opt into high-cost overdraft programs for debit card purchases," which can find unsuspecting consumers paying as much as $35 for an overdraft.

For example, one bank marketing notice that went out to its customers states, “The Bounce Overdraft Program was designed to protect you from the cost and embarrassment of having your transactions denied.” Experts say that this is where some of the confusion began because if the customer does not opt into the program, then they would NOT pay a fee; their purchase transaction would simply be denied at the register.

The results of the study conducted by the Center for Responsible Living seem to echo these fears. Of the 1,000 bank customers that participated in the study, 60% say they opted in for the overdraft fee protection program because they did not want to pay fees if their card was declined.

Maybe it is simply the humiliation of having a purchase declined while at the register that has scared consumers into opting to pay the fee for the “if” and “when” transactions that may send their account balances into the red. So then it becomes the question of “Are customers reading the information wrong, or is the bank writing it in a confusing manner?”

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.