checking

Overdraft protection plans

Opposing the privilege

Consumer groups are adamantly opposed to this type of coverage. Here's why.

There is no guarantee by the bank that your check will be paid. Bounce-protection plans typically limit the amount by which you can overdraw your account to somewhere between $100 and $1,000. If the overdraft exceeds that, the bank may decide not to pay the check.

And most bounce-protection plans require the overdraft and fees to be repaid within 30 days, sometimes even less, maybe two weeks. After that, the bank may send your account to a collection agency.

You can expect to be charged the bank's standard NSF fee plus a daily fee of anywhere from $2 to $10 until the account is brought into balance.

Example:

Suppose you overdraw your account by $100 and it takes you 10 days to repay. If your bank charges a $35 NSF fee, plus $5 per day, you're stuck for $85 in fees on the $100 that you, essentially, borrowed from your bank for 10 days. It's easy to see why consumer groups say bounce protection amounts to short-term, high-cost credit, payday lending by banks.

Another problem with this type of coverage is that some banks include your bounce-protection limit when you do a balance inquiry by phone or ATM. If you have $300 in your checking account and you have a bounce-protection limit of $100, your balance could show $400. There may be some indication that $100 is bounce protection, but an unsuspecting customer could easily spend more than their true $300 balance and trigger an overdraft.

Denying automatic protection

If your bank notifies you that you've been given this automatic protection and you're not comfortable with it, call the bank and tell them you don't want the service; opt out of the program. If bounce protection appeals to you, be sure you get 30 days to repay the overdraft, find out if there's a daily fee in addition to the NSF charge and ask if the institution includes the bounce protection dollar limit when a balance inquiry is made. If it does, keep that in mind when making withdrawals.

Up next, chronic check bouncers can find themselves blacklisted from getting a checking account. You'll see why you don't want your name to be found in ChexSystems.

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