JPMorgan Chase & Co., the nation’s third-largest debit card issuer, is mailing letters to its debit cardholders urging them to sign up for the bank’s overdraft protection or overdraft coverage with a stern warning about financial penalties if they do not.
Chase is sending the letter to an undisclosed number of its 28.2 million cardholders to comply with rules concerning bank overdraft fees the Federal Reserve Board of Governors issued in November. The Federal Reserve rules become effective July 1.
The letter encourages debit cardholders to select either overdraft protection or overdraft coverage by Aug.15, says Tom Kelly, a Chase spokesperson.
“Beginning 8/15/10, we will not authorize and pay overdrafts for everyday debit card transactions without your approval,” Chase notes in the letter.
Chase will charge debit cardholders up to $35 to cover overdrafts if the cardholder’s checking-account balance is negative at the end of that day. Beginning March 29, Chase will charge a $34 maximum overdraft fee. Each time a debit cardholder’s account is overdrawn five or more consecutive business days, Chase will charge an additional $15.
To avoid overdraft fees, debit cardholders who sign up for overdraft protection must select either their credit card, savings account or a home-equity line of credit from which Chase can access funds when a cardholder’s checking account balance hits zero. Debit cards are tied to checking accounts.
With the overdraft coverage, Chase decides whether to authorize debit card purchases if cardholders have a zero balance in their checking account. Chase’s criteria for approving or disapproving a purchase is not known.
The Fed issued its final rules prohibiting banks from charging consumers fees for paying overdrafts related to ATM use and one-time debit card transactions unless the consumer opts in to the overdraft service.
“Overdraft fees can be costly, Fed Gov. Elizabeth A. Duke said in a statement. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”
