A friend of mine was charged $800 for using his debit card eighteen times with insufficient funds in the account. Are banks regulated as to how much they can charge as a penalty for using a debit card without funds in the account? Why isn’t the card simply denied if there are insufficient funds in the account?
Many banks would, in fact, deny an attempt to use a debit card if the requested transaction would overdraw (or further overdraw) the attached account. It is unknown if there are any who charge cardholders for making such an attempt, but there is no federal rule that would prevent such a charge (if it had been properly disclosed to the customer).
It's likely that your friend's depository institution provides some or all of its customers a "courtesy overdraft payment" service that provides an informal (non-contractual) overdraft cushion and approves transactions that might overdraw the account (if the overdraft will not exceed the cushion amount). In such cases, the bank simply approves the transaction, but charges its customer for overdrawing the account. Your friend should contact the card issuing bank to get any details about these overdrafts.
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Many banks would, in fact, deny an attempt to use a debit card if the requested transaction would overdraw (or further overdraw) the attached account. It is unknown if there are any who charge cardholders for making such an attempt, but there is no federal rule that would prevent such a charge (if it had been properly disclosed to the customer).