Understanding the New Overdraft Coverage Rules

To enroll you in its overdraft-protection program, your bank must now ask your permission -- beginning July 1, 2010, for new accounts and August 15 for existing ones. If you decline, your bank cannot charge you a fee if a single ATM withdrawal or debit-card purchase would overdraw your account; together, such transactions trigger nearly half of all overdrafts.

But you may still be nicked by fees. The rules do not apply to payments you make by check and automatic debit. There is still no legal limit on the number of fees a bank can charge you -- either in a single day or over the course of a year. Plus, the new rules don't prevent banks from pushing you into overdraft. For example, if several checks are presented for payment at the same time, the bank may clear the largest one firstÑleaving you with a negative balance.

In reaction to consumer outrage, some banks have changed their policies. Chase now limits the number of overdraft fees to three per day and is posting debits and ATM withdrawals as they occur. Bank of America has cut its maximum number of overdraft fees to four per day. Citibank limits charges to four fees per day and will reject an ATM withdrawal or debit-card purchase if it would overdraw your account.

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Bills pending in the House and Senate would limit banks to no more than one overdraft fee a month and six per calendar year. Plus, overdraft fees would have to be "reasonable and proportional to the cost of processing the transaction."

Bottom line: Try to maintain a cash cushion in your checking account, and closely monitor your balance.