Protection from Debit Overdraft Fees

FRESNO, Calif. This summer, new federal regulations will require banks to ask before signing you up for overdraft coverage.

Charles Berman had no idea he'd overdrawn his checking account. Then he was hit with a flood of overdraft fees. It started with a $5 lunch that generated a $35 fee.

"By the time I found out that I was overdrawing my account, I ended up with hundreds of dollars that I had to pay of overdraft fees for buying small items like a soda," Charles Berman said.

Automatic overdraft coverage has been controversial. Bank of America recently announced it's doing away with this coverage altogether on debit-card purchases.

Currently, banks are allowed to automatically enroll you in overdraft coverage that can result in those hefty fees. But that's about to change.

"Soon new federal regulations will require that banks get your permission to cover overdrafts," Greg Daugherty said.

Should you sign up? Consumer reports says no. But some banks are pushing hard, sending brochures warning: "your debit card may not work the same way anymore" and "don't lose the flexibility" of overdraft coverage.

"It's true that overdraft coverage can help you in an emergency, say you need to have your car towed and don't have the money in your account. But the fees can be hefty, as much as 35 dollars each time," Daugherty said.

Far better, avoid overdrafts altogether. If your bank offers it, sign up for electronic alerts when your account balance gets low.

"Another option is to link your checking account to your savings account or line of credit. The fees for that kind of protection are usually about 5 or 10 dollars per overdraft," Daugherty said.

As for Charles, he now checks his accounts frequently online to make sure he doesn't spend more than he has.

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