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Paid Insufficient, My Old Friend

This article was written by in Banking. 12 comments.

Last week on Facebook I was celebrating the new law that stops banks from auto-enrolling new customers into overdraft programs, making it merely optional instead. A more conservative friend from college expressed his dislike of the law, asking me (I’m paraphrasing) “What happened to personal responsibility in this country? Why is it a good thing that the government is telling companies how to conduct their businesses?”

I understand where he’s coming from. Nobody likes to be told what to do, especially if it’s against their instincts, and through discussions with him, it occurred to me that this part of the law is actually pointing a huge, glowing neon finger toward personal responsibility, instead of away from it.

When I worked Customer Service for Bank of America, I heard requests every day from people who wanted to opt-out of overdraft protection. I think that’s a cry for more personal responsibility. In other words, they were asking Please, let me stop spending more than I can afford to! Unfortunately, the bank’s policy made no room for that kind of request. We had to tell them no.

For my entire adult life, if I made a mistake with my bank account (usually as a result of not knowing my correct available balance), the bank would still let me buy the little things I wanted, and charge me about $30 for each one that brought my balance further negative. That was entirely my fault, I know, but fixing that situation would’ve meant carrying around some kind of check register and/or holding onto receipts, which isn’t something I was willing to do.

Throughout all this, though, I never considered myself as irresponsible, at least not so far as it affected other people. Foolish, even idiotic, yes, but I was only hurting myself. The bank always got paid what they were owed, and they made a bunch of money from my mistakes.

I didn’t want that to continue, but I also didn’t want to be carrying little bits of paper everywhere. From what I could tell, there should’ve been a third option between paying overdraft fees several times a year and carrying some kind of man-purse. That third option is now here: you can turn off overdraft protection. Even better, it’s being turned off for everybody unless they turn it back on. All the law does is give consumers more options.

It looks like Chase Bank is already making changes to how they pay things. I got the following notice through my e-mail the other day:

I can’t remember the last time I saw the phrase “Paid Insufficient”. It basically means: we should’ve returned this request to debit your account, because it would bring you negative, but we know you’re good for it, so we paid it anyway and didn’t charge you a fee.

And they were right about me. The next day, the balance was positive again. A couple of scheduled deposits took longer than I thought they would, and now everything is back to normal. I don’t know for sure if this is a result of the new law, or if the bank is treating me better for being a good and loyal customer. Either way, I’m glad to see things changing for the better.

Then again, it’s also possible that the Fates are just playing a harmless joke on me, since that $1,495 payment in the notice above represents the last huge payment toward a credit card debt that has been ongoing for thirteen years.

Did you opt back into overdraft protection on your account, or are you willing to risk an item going unpaid right away?

Published or updated August 13, 2010.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 12 comments… read them below or add one }

avatar 1 Anonymous

I disagree with your friend. No I did not Opt-in for overdraft protection. I’m fine with the bank denying payments if I don’t have the money. I should know my account balance. I keep a check registry in my car and place any debit card transactions in it at the end of the day. That way I know exactly what my account balance is. I use cash for most of my purchases outside of bills anyway, so I just record when I take out my weekly cash. I know how much because I have a budget. Balanced budget, unlike our government! People just need to be financially competent and do what’s right. Live on less than you make. Period.

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avatar 2 Anonymous

Not going to lie, I’ll probably opt back in…

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avatar 3 Anonymous

I’m with you on this one, Smithee. I think the bill makes folks more personally responsible, not less.

Still, I plan to opt in. Because I keep careful track of my account balances, the odds of overdrawing an account will be low. The overdraft protection is nice to have as a backup.

All the best,

Len Penzo dot Com

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avatar 4 Anonymous

I understand this. I had this same problem at Bank of America which ended up causing me over 300 dollars of overdrafts in one weekend. I made two big deposits for my business on Friday which were not processed till Monday morning. Made several purchases over the weekend with my debit card. I never carry cash anymore so I will use my card for very small purchases, a practice that I am going to change. I check my account online and it showed the pending desposits, but charged me overdrafts all weekend. They did process the highest totals first so that the others ones would bounce. Even holding debits from Friday and processing them on Sunday so that they could maximize the amount of overdrafts.

Now, I admit, I did overdraft my account. And I should be penalized for the payment that took me over. Not the bank’s fault. I don’t think anyone could argue that the bank should be responsible for my mistake and poor bookkeeping skills, However, I do believe that it is wrong for a bank to purposely change the order of my debits to maximize on that mistake.

Bank of America is not offering the opt in program, but I probably would if they had it. That has saved my butt plenty of times. But I don’t think that this is a case of the goverment being forced to manage people’s money, moreso a case of preventing the banks from illegal practices to get more than they should for a mistake.

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avatar 5 Anonymous

Just so you know, your deposits are instant. The thing that banks do is they hold it for a few days to make some interest on it and then they “deposit” it into your account. So not only do they make money using this method but they are banking on you over drafting to make even more. Just an FYI.

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avatar 6 Anonymous

I don’t want overdraft protection. “Please, let me stop spending more than I can afford to!” is not my mantra. It’s also a matter of security. To allow more funds than are in a bank account to be spent via debit card compromises my financial safety, but not because I would spend what I don’t have – someone else could do that. Everything I spend is logged, and I am perfectly willing to do that. I’ve never paid a bank fee and don’t expect to.

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avatar 7 Anonymous

I opted back in immediately. I’d much rather have the bank cover an occasional overdrawn charge than return an NSF to the merchant so they can slap me with a charge as well.

I think this new legislation is a giant step backwards. I don’t see at all how it’s pointing a neon finger toward personal responsibility. Instead, all it does is make it more difficult for the banks to offer a service that takes away some of the bad consequences of bouncing a check.

Bank of America not allowing you to opt out of this service was their policy. Other institutions (my credit union, for example) allowed us to opt out if we wanted to. So you always had the option of switching banks if you didn’t want the service.

Your friend has it exactly right. People should be able to choose (as you did) how carefully they manage their money, and spend beyond their means if they want to, and allow the banks to honor their overdrawn accounts for a fee. Now there are roadblocks for banks to do business this way.

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avatar 8 Anonymous

I agree that there should be more personal responsibility. The government should stop spoon feeding the population. Set the bar high and let the people get off the lazy train. You wouldn’t teach your kids the financial habits that the government allows people to get away with.

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avatar 9 Anonymous

This would only be true if the system wasn’t already rigged for you to fail. You really don’t know….

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avatar 10 Anonymous

Chase waives the fee for overdrafts under $10 as a matter of their internal policy, and they did that before the new regulations took effect. Under the new regulations, bank *can* still charge fees for checks or ACH overdrafts. The regulations only change how debit card transactions are authorized.

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avatar 11 Anonymous

I’ve encouraged my kids (frequent abusers of “overdraft” protection) to get Alerts on their phone. They can get a text once/day with the balance and get a text anytime the balance drops below a certain amount (say $50). This way, they can always know their balance.

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avatar 12 tigernicole86

Please, tell me no when I try to go 30 cents over my limit. I’ve already learned that even though you can have never overdrafted before they’ll still get you.

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