The CARD Act is forcing banks to rethink the way they market the debit card.
Banks have traditionally profited from debit cards by charging customers an “overdraft fee” when they withdraw more money than they have in their accounts.
Customers who pay attention to their balances and rarely take out too much money, rarely have to worry about the fee. But customers who frequently exceed their account balances and pay more in penalty fees, naturally become the most profitable for banks.
The only problem was that some banks weren’t giving customers the option to decide whether they wanted to be able to overdraw money from their accounts.
The new CARD Act prohibits banks from charging an overdraft fee unless customers voluntarily opt-in for the ability to overdraw money.
Banks have now launched a new aggressive marketing campaign aimed at encouraging customers to opt-in for the service.
The New York Times reported that Chase Bank, for example, has sent out warning letters in red print, which read:
“Your debit card may not work the same way anymore, even if you just made a deposit. If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with “even in an emergency” underlined, according to The New York Times.
Their obvious strategy is to scare customers back into their old system by associating the “freedom to overdraw money” with “security.”
But many financial analysts also warn that banks plan to raise their various fees to offset the profits lost from customers who choose to opt-out.
So when your bank offers you “freedom” with your debit card, remember to ask how much that freedom costs.