An overdraft occurs when a person writes a check, makes an ATM transaction or uses a debit card to make a purchase for an amount greater than the balance in his or her checking account. Financial institutions cover the overdraft for a fee, and the fee is charged each time you overdraw your account.
Financial institutions have ways to help you cover your overdrafts. With standard overdraft practices, when your financial institution will cover your transaction for a flat fee of about $20 $3030 each time you overdraw your account. With an overdraft protection plan, your institution may offer a line of credit to cover transactions when you overdraw your account.
Under the rules of the Credit CARD Act, your financial institution must get your permission to apply its standard overdraft practices to debit card and ATM transactions before you can be charged overdraft fees. If you do not grant permission, your everyday debit and ATM transactions will be declined when you don't have enough money in your account, but you will not be charged overdraft fees.
The new overdraft rules give you flexibility. If you opt in, you can cancel at any time. If you do not opt in, you can do so later.