I'm sure many of you have had that experience of the $30 cup of coffee, right? For whatever reason, you don't have as much in the bank as you think, or maybe a deposit hasn't cleared yet, or your forgot about that automatic Netflix payment ... so you go about your business, stop at a coffee shop for your morning latte, pay with your ATM card only to later discover that because you were fifty cents short, your kindly bank was looking out for you and as a courtesy, they covered that fifty cents and only charged you $28.00 for that service.
This exact thing happened to me. I was fairly low on my checking account, but I had deposited a third-party check a few days earlier. I assumed it had cleared and indeed, my "balance" reflected that it had. But apparently, my "balance" wasn't the same as my "available balance." In any event, I thought a $30 dollar cup of coffee was worth paying a visit to my bank for, so I stop in and kindly request that they remove the $28.00. At first, the cashier explained to me that the "overdraft protection" was a courtesy. I countered that it was more like a crime, I wasn't even a dollar short! I asked them, why, if the money wasn't available, my card just wasn't declined? Eventually, my credit union did remove that charge, but only after I was practically in tears, explaining that I had just recently lost my job, etc.
Needless to say, I've been very careful since then when using my debit card. Now that banks are no longer allowed to automatically extend the courtesy of gouging you for a cup of coffee, they are doing their darndest to get people to "opt-in" to their over-draft protection courtesy. Some charge a nominal monthly fee for this service, along with a charge every time they do cover your deficit. But the thing is, if you don't opt in, and you try to use your card when funds aren't available, your card will just be declined. If you can stand that minor embarrassment, that seems to me to be the wiser choice.
Although you can choose to opt-in or out at any-time, as of August 15, 2010, if you are an existing account holder, unless you opt-in, your bank will no longer be able to cover your deficits and charge you for them. Instead, your card purchases will be declined at the register. The only reason I could think of to opt-in is if I wrote a lot of checks ... my bank would cover them and charge the fee, but at least they would clear and I wouldn't get double-dinged by merchant or vendor NSF fees. But since I pay most of my bills on line or over the phone, I won't be opting in.
According to this article in today's Sacramento Press (which, oddly enough, starts off very much like my own diary, only even more clever!), Americans paid over $38 billion dollars in overdraft fees. We know how the banking industry operates, and we know that they are not going to want to give up this revenue stream so easily. So as the August 15 deadline nears, they will be trying ever harder to get people to opt-in to their overdraft protection plans.
The article to which I just linked above, "Everyday Law: New Law Safeguards Consumers against Overdraft 'Protection'," has a good link to the Federal Reserve website, as well as pertinent section of the U.S. Code dealing with electronic funds transfers.
I've read a number of articles on this topic and the upshot is: opt-out, but keep close tabs on your account!