Overdraft Checking - How We Got Here and What You Can Do About It

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In 2008, the banking industry made $29 billion in fee income, with the median overdraft fee being $27.
The Obama administration has even proposed a new government agency that would have the power to regulate such fees.
What happened to make overdraft checking such a big problem, and how can you stop your bank from taking excess money out of your pocket? The history of overdraft protection For the majority of the twentieth century, the primary payment options were cash or check.
You knew how much money was in your account by keeping a handwritten check register.
If you wrote a "hot check" for more money than you had in your checking account, the check would bounce.
The bank would reject it and charge you a fee.
The bank would then return the check to the merchant, who would charge you another fee.
To save their customers from embarrassment and multiple fees, banks began instating overdraft protection programs.
Under these programs, the bank would charge you a single fee and cover the funds that you didn't have, up to a certain amount.
Checks no longer bounced, customers paid one fee instead of two, and the bank made money.
The rise of the debit card In 2006, plastic payments (debit and credit cards) accounted for half of all retail payments for the first time.
By 2008, debit cards accounted for 37% of all in store transactions, while checks only accounted for 8%.
The overdraft protection programs that seemed like such a good idea for check writers may not be quite so enticing for a frequent debit card user.
  While some people might like to save the embarrassment of being declined, others would rather skip the fee and be told no on their transaction.
Debit card users overdraft their accounts more often than those who write checks for several reasons.
One is that few people keep a check register anymore since online banking allows for all transactions to be viewable over the internet.
A second reason is because payments are now happening in real time, while checks take several days to clear.
Banks, of course, are taking advantage of this increase in overdrafts.
To maximize fees, banks automatically enroll all of their checking account customers into overdraft protection programs.
How this affects you If you frequently write checks, overdraft protection may be a good solution to paying multiple bounced check fees.
If you are a heavy debit card user that frequently overdraws your account, however, you could visit or call your bank and ask to be removed from their overdraft program.
Now when you make a purchase for which you do not have enough money, the merchant will simply decline your card.
Although you won't be able to carry through with your purchase, you will not be charged an overdraft fee.
Going without coffee for a day could be better than paying $40 for a latte.
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