Regulation E: What consumers and merchants need to know - KWWL - Eastern Iowa Breaking News, Weather, Closings

Regulation E: What consumers and merchants need to know

Financial Tip of the Week from the Iowa Bankers Association:

Iowa merchants and consumers need to be aware of a new federal rule that could lead to a significant increase in debit card transactions being denied at the point of sale.  Compliance with this rule is required of all financial institutions and becomes effective July 1, 2010, for new accounts and Aug. 15, 2010, for existing accounts.

The new Federal Reserve Board Regulation E rule gives consumers a choice to opt-in to their financial institution's overdraft protection service program for ATM and one-time debit card transactions.  If consumers decide to opt-in, nothing changes – financial institutions will continue to assume the risk involved in covering overdrafts and charge a fee to the card holder in the event the account has insufficient funds. If consumers decide against opting-in to a program, and have insufficient funds in their account, their transaction will likely be denied at the point of sale.  

All financial institutions must comply and all are preparing communications with customers regarding their choices and obligations. To help Iowans better understand the new regulation and what their options are, the Iowa Bankers Association offers the following tips and information:

Options for Account Holders

  • Opt-in:  If your financial institution has a practice of paying overdrafts for ATM and everyday debit card transactions, then there will likely be the option to opt-in to their overdraft program. Account holders will receive an opt-in notice with directions on how to do so. You may be able to opt in via the Internet, by phone or in writing.  You can also inquire at your bank to better understand the process.  If you decide to opt-in, you will still have the option to cancel at anytime.
  • Don't Opt-in:  If you don't want to opt-in to an overdraft program, you don't have to.  However, if you do not opt-in, your ATM or debit transactions may be denied if there are inadequate funds in your account and merchants may require you to provide an alternative form of payment, such as cash, check or credit card.  There may be other choices available at a financial institution to protect against insufficient funds in an account.  Many banks provide the option to link a checking account to a savings account or line of credit.  Call or visit your bank to inquire about your overdraft protection options.

Avoiding Overdrafts

The best and easiest way to avoid overdraft fees it to keep track of your transactions and account balance.  If you keep extra money in your account -- a cushion -- you will be less likely to overdraw.  Some banks offer to send you an alert by phone, e-mail or text message if your balance falls below a designated amount.  Check with your bank to find out what options are available.

More information on the new overdraft rules is available on the Federal Reserve's consumer information website at

These financial tips are provided by the Iowa Bankers Association (IBA), representing banks and thrifts in the state. For more information, go to

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