 When
the bank doesn't say no
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 Dear
Dr. Don,
When using a bank debit card to make a purchase at a store, if the funds are insufficient for the purchase, isn't the transaction refused at the checkout? I have had a cash withdrawal refused at a foreign ATM for that reason and didn't have any overdraft charges assessed, but my son has had multiple overdraft charges assessed at one time for a small deficit of funds and small purchases before he was notified by the bank that their $29 charges were being piled on.
I have examined the brochure and the terms on the back of the form that came with the card and there is no mention whatsoever of the possibility of these charges happening in this manner. Their terms state that money can be withdrawn up to the available balance in the account only; again, no mention of the alternative. Please advise us!
-- Deborah Deficit
 Dear
Deborah,
While the advances in electronic banking are remarkable, bank balances
aren't always going to be available online in real time to the merchant.
Until they are, having transactions denied at point of sale for
insufficient funds isn't a workable solution.
In that light, being able to overdraft the account
for small dollar amounts is preferable to the merchant trying to
collect on insufficient funds, or NSF. While the NSF fees may
be comparable to the overdraft charges, NSFs may be reported on
the account holder's consumer banking report and stay on that report
for five years.
A Bankrate feature, "ChexSystems,"
has more about consumer banking reports while another Bankrate feature,
"How
to get your specialty consumer reports," explains how to
get a free copy of that report.
Courtesy overdraft protection has been a hot topic
in banking circles over the past few years. A
FindLaw article does a good job explaining the issues.
When a debit card is used as the method of payment
and there are insufficient funds in the account to cover the purchase,
it is the bank's option to decide whether it will approve the transaction. That's
what is called "courtesy overdraft protection." Banks
typically will approve $100 to $200 in overdrafts with no formal
overdraft policy in place but will charge the overdraft fee on the
account for each transaction.
This may be a throwback to the days when one of the
biggest embarrassments was to have your transaction denied at point
of purchase. The problem, of course, is paying a $29 overdraft
fee for a $5 purchase at the convenience store.
In the end it's your son's responsibility not to overspend
the account. It may be possible to revoke the bank's courtesy
overdraft protection, and you can talk to the bank about doing just
that, but your son should be prepared for the potential consequences
of that action the next time he overspends his account.
There are other forms of overdraft protection, like
linking the account to a savings account or credit card. He
should talk to his bank about these options.
The Federal Reserve Board publication,
"Protecting Yourself from Overdraft and Bounced-Check Fees,"
is a nice primer on the topic.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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