Written by Marc R Barnes EA
July 09, 2010
New Federal regulations will soon take effect. This change could have important implication for your business because it may lead to more debit card transaction being declined at the point of sale.

What's Changing
Today, as a courtesy to customers, many banks have standard overdraft protection practices whereby they authorize and pay an everyday debit card or ATM transaction, even if there are insufficient funds in the customer's account. They then charge a fee for this service.

In November 2009, the Federal Reserve made a revision to Regulation E which governs electronic banking transactions. Effective August 15, 2010, Regulation E requires that financial institutions obtain a customer's authorization in order to authorize or pay items into overdraft and charge the customer an overdraft fee. Customers who do not choose to opt in will be automatically outed out. This means that generally, if a customer does not have a sufficient available balance to complete an ATM or debit transaction, the transaction will be declined.

What transaction will be affected
  • The new rules only apply to everyday purchases, one time debit card purchases and ATM transactions.
  • Checks and recurring transactions are not affected by the new rules.