NEW YORK (AP) – Bank of America has slashed the amount it charges customers when they spend more than they have in their accounts and plans to abolish its fees on returned checks altogether.
This is the latest move by the nation’s largest banks to cut the overdraft fees they have been charging customers for a long time, fees that are often hundreds of dollars a year for frequent overdraft users.
The bank, based in Charlotte, North Carolina, will cut the overdraft fees it charges clients to $ 10 from $ 35 starting in May. It will also stop charging insufficient funds fees that are charged when it declines a transaction, better known as check refund.
Although checks are no longer widely used, NSF fees can come from automatic payments such as utility bills. Bank of America, the nation’s second-largest bank, says approximately 25% of its overdraft / NSF fee revenue comes from NSF fees each year. An overdraft fee typically occurs when someone makes a purchase with a debit card in excess of the available cash in their account.
Overall, Bank of America estimates the moves will cut its overdraft fee revenue by 97% from 2009 levels, a year before it began taking additional steps to curb overdraft fee revenue.
“This is the final step on our journey,” said Holly O’Neill, president of retail banking at BofA, in an interview. “We have good financial solutions for clients who do not need to rely on overdraft, but we will still have overdraft if needed.”
Consumer groups and policymakers welcomed the move, especially given the size of Bank of America as the largest consumer banking franchise in the country.
“I have worked to reduce or eliminate overdraft fees for 20 years and to give them credit, they really listened,” said Martin X, CEO of the Center for Responsible Lending. “This could potentially lead to hundreds of millions of dollars remaining in customer accounts rather than going into commissions.”
It remains to be seen whether the decision by BofA – a leader in retail banking – will force other banks to take similar measures to reduce overdraft fees.
“Banks will take different approaches. Some are going to eliminate them, reduce them, others will remain in denial of how harmful these fees are. But now they have competitive pressure, ”said Lauren Saunders, deputy director of the National Consumer Rights Advocacy Center. “Any bank that doesn’t seriously consider reforming its overdraft practice is just hurting itself in the long run.”
The bank is also canceling two lower fees. It will no longer allow customers to overdraft their ATM accounts, and will eliminate the $ 12 commission charged to customers where a bank would automatically transfer money from one account to another to avoid overdraft, often transferring money from a long-term savings account to an ATM. initial check of clients.
Overdraft has its origins in banks providing paid services to customers who may have misbalanced their checkbook and wanted the bank to pay for the purchase. But the widespread use of debit cards has turned this courtesy into a routine source of income for banks. If the customer had no funds in the account, the $ 5 coffee could end up costing $ 35 due to overdraft fees.
Overdraft fees have become lucrative for the industry, but at the same time have made banks a target for consumer advocates and regulators. In the aftermath of the financial crisis, Democrats made the Consumer Financial Protection Bureau and other regulators responsible for curbing overdraft fees. The CFPB under President Biden decided to take another look at the practice of overdraft fees.
“For many large banks, overdraft fees continue to be a stable, reliable, predictable and easy return that shareholders love,” said Rohit Chopra, CFPB director in December.
Senator Elizabeth Warren, Massachusetts, a longtime critic of banking practices such as overdraft fees, called BofA’s announcement “a step in the right direction.” Twitter…
“Big banks should eliminate these fees entirely,” Warren said.
Senator Sherrod Brown, Ohio, and the chairman of the Senate Banking Committee called the BofA decision “a good first step towards getting banks to eliminate overdraft fees entirely.”
Over the years, BofA has been phasing out its practice of overdraft fees. In 2010, the company got rid of the overdraft fees associated with purchases with a debit card, and in 2014 created a checking account that did not allow customers to use overdrafts. The SafeBalance account is currently the most frequently opened bank account.
But BofA and the industry in general weren’t ready to get rid of overdraft fees entirely until recently. Many banks froze the fees they charged customers during the first year of the pandemic, and the industry continued to record record profits. While overdraft fees fell for the first time in six years in 2020, the industry still received more than $ 30 billion in fees from the practice that same year.
Therefore, starting in 2021, some large banks began to announce a complete waiver of overdraft fees. Ally Bank, PNC, Santander and Capital One were some of the largest regional banks to effectively eliminate overdraft fees. JPMorgan Chase has also simplified overdraft practices by giving clients more leeway to run into negative positions in their accounts before fees are charged.
Bank of America will release its fourth quarter results on January 19, giving investors and the public an idea of how much the bank is still getting for the full year from fees such as overdrafts.
Ken Sweet covers banking and consumer finance for the Associated Press. Follow him on Twitter at @kensweet.
This story has been amended to show that Lauren Saunders is the Deputy and not the Executive Director of the National Consumer Advocacy Center.