Taylor Price, who uses a debit card for almost all his purchases, thinks the new federal rules that prevent banks from charging overdraft fees without his permission could save him big in the future.
Last fall, the 19-year-old college student ordered his usual cheap lunch: two tacos for $1 at Jack in the Box in Santa Rosa.
To his surprise, the cash-strapped student ended up paying about $41 for those two tacos because he didn't have enough money in his account and he got charged overdraft fees by Wells Fargo.
"I knew I was low," Price said. "But I thought if I didn't have the money, it wouldn't work."
He was wrong. But come this summer, that changes.
Under new federal regulations, banks and credit unions will no longer be able to process debit or ATM card transactions unless the underlying checking account has sufficient funds -- or the cardholder gives explicit permission to process underfunded transactions.
The new rules take effect July 1 and apply to existing customer accounts starting Aug. 15.
The rule change has been widely applauded by consumer advocacy groups, which were frustrated that most banks automatically enrolled customers into the fee-laden programs.
But it could cost financial institutions billions of dollars in lost revenue, and the industry is still grappling with how to respond.
Exchange Bank, Sonoma County's largest local bank, generates about $2 million in overdraft fees on debit cards annually, said Brad Hunter, head of electronic banking. Officials are still determining how to deal with any revenue loss from the new rules.
The entire banking industry might have to abandon some perks as a result, he said.
"This may be the death of free checking," Hunter said, echoing others in the banking industry. "A lot of institutions justify free checking because they can make it profitable by the overdraft fees."
Exchange Bank officials are watching how the state's two largest players -- Wells Fargo and Bank of America -- adjust to the new rules before making any decisions.
So far, two dramatically different approaches have emerged from the major banks.
On Monday, Bank of America followed Citibank's lead and announced it was doing away with its $35 overdraft fee associated with debit cards -- a move that The New York Times estimated could cost the nation's largest bank billions of dollars. Bank of America customers will no longer be allowed to use debit cards to overdraw their accounts, even if the customer is willing to pay the $35 fee the bank currently charges.
On the flip side, Chase has launched an aggressive direct-mail campaign to encourage customers to enroll in its voluntary overdraft protection program.
"Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you," the bank is telling customers.
Chase wants customers to opt in to the program, which will allow it to continue providing the service and collecting its $25 to $32 fee.
Wells Fargo hasn't announced any revisions to its overdraft fees yet.
"We are getting ready to share our plan with employees," Wells Fargo spokeswoman Julie Campbell said Friday. "And then we will roll it out to customers."
The rule changes do not impact under-funded checks, which can still be processed by banks and credit unions even if customers have not given their permission.