Consumers will take on credit card debt to cover overdrafts

A federal law that requires banks to ask their customers to opt into overdraft protection programs takes effect on August 15, and many consumers have already decided to enroll.

According to a report from Consumer Affairs, a “surprising number” of consumers say they either have or will opt into the new overdraft protection plans their banks offer. About 26 percent reported they had already done so, and another 26 percent say they will do so in the near future.

One possible reason for this, the report said, is that banks are now offering consumers low-cost alternatives to the hefty overdraft fees they used to charge when a consumer accidentally spent more money than they had in their account. One such option that has proved popular is tying a checking account to a credit card, so that any overage is transferred into debt – for a small fee.

In addition to the opt-in programs, the recent financial reform bill also reined in how much banks could charge for overdraft fees.