If you have had a checking account for any length of time, you more than likely have received an overdraft fee at one point or another. The fees, which banks charge when your account is short of funds, can run upwards of $30 or more. But not for much longer.

Hammered by bad press and poor public opinion ratings, banks have submitted to a new federal law that will restrict overdraft activity on consumer checking accounts. Below, BankShout highlights some of the main points of the new law, which takes effect on July 1, 2010, including:

  • Transactions affected
  • ‘Opt-Out’ Letter
  • Effects for consumers

The main thing that people need to know about the new overdraft protection law is what transactions are affected. Only ATM withdrawals and debit card purchases (like when you use your check card as credit or debit) are addressed by the new law. In other words, banks will still be able to charge you overdraft fees for bounced checks or automatic bill-payments that overdraw your account.

At some point, you should have received a letter from your bank regarding the new law. If you don’t respond to it, the bank will assume that you are opting out of overdraft protection (this is a key change from the normal industry practice, when financial institutions assumed everyone was opting-in to overdraft policies, unless a customer stated otherwise).

So what are the effects for consumers? Well, obviously you won’t have to worry about getting numerous overdraft fees for many small debit purchases; it had been standard practice by many banks to post items in order of amount, meaning for instance that your rent or mortgage check cleared first, then if your account was overdrawn each small debit purchase would rack up its own separate overdraft fee.

That will end. Yet your debit card can now be refused as well. Confusion over when deposits become available for withdrawal can mean that bank customers could be “shut off” from using their debit card until a bank sorts out deposit posting and clears other items.

Overall, of course, the new law has no real effect on people who balance their check books after each transaction anyway. That is likely a dwindling minority indeed, so most folks should take note of how the new Overdraft law might affect them.