Banks across the country have adopted a tricky new type of overdraft plan with huge fees. It is called Courtesy Draft Protection. This new type of overdraft protection replaces the traditional overdraft protection. The traditional plan allows a consumer to prevent writing bad checks by drawing on a savings account, line of credit or credit card.
Washington Mutual is one of the many banks that have automatically enrolled their customers in a new bounced-check protection plan. Their customers didn’t have to sign up for a line of credit or pay an annual fee. If they wrote a check that was too large for their balance, the bank simply covered the check and charged a $22 fee. Their customers never again would face the embarrassment of a bounced check nor would they have to pay a merchant fine for writing a bad check.
Courtesy overdraft, or bounced-check protection, uses the banks money instead of the consumers money or credit line to cover the checks that exceed the consumers balance up to a certain amount typically $100 to $1,000. In addition to the per-check fee, some banks tack on a daily fee of $2 to $5 until the checks are made good. Consumers must pay the money back within two to four weeks or risk facing collection actions.Other ways courtesy draft protection is different from overdraft protection include:
Its automatic. Banks typically extend the service to some or all of their customers, who must opt out if they dont want the coverage. With traditional overdraft protection, customers have to sign up.
Its discretionary - on the banks part. The bank decides whether or not to cover an overdraft; the consumer never knows for sure if the charge will be honored. With overdraft protection, the consumer signs a contract and the bank is typically obliged to honor checks that are under the plans limit.
Its costly. Traditional overdraft protection comes with a $10 to $50 annual fee, and users typically pay regular credit card or line of credit interest rates on any balances owed. With bounced-check protection, the fees banks charge $25 per check is average, although some go as high as $40 would translate into annual percentage rates of 200% to 500%, or even more.
How can you protect yourself?
Opt out. If you are not sure whether your bank has enrolled you in its bounced-check protection plan, you might have missed the glossy brochure advertisingthis service. Call and ask. You should be able to get the coverage removed if you specifically request it. Follow up in writing.
Sign up for real overdraft protection. The programs that connect your checking account to a savings account, credit card or line of credit are a much more cost-effective way to guard against bounced checks.
To avoid overdraft of your account, get some budgeting help. Go to the DMCC website at www.dmcccorp.org and click on to educational materials where you can view a free video on budgeting and download budgeting forms.
DMCC is a 501 (c)3 is a charitable organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with their debt. Education is provided free of charge to consumers as well as personal counseling to identify the best options for the repayment of any unsecured debt. To speak to a certified credit counselor, call 1-954-418-1466, email contact@dmcconline.org.
DMCC is located at 700 West Hillsboro Blvd., Building 1, Suite 105, Deerfield Beach, FL 33441.
