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Robert Trigaux

Bank of America lowers nasty overdraft fees as lawmakers ready crackdown on bank charges




Wake up and good morning. I had to laugh -- not always easy at 5:45 this morning -- when I read Bank of America's latest press release offering us poor banking souls some supposed relief from BofA's extraordinary nickel-and-diming. If the bank had its own reality show it would be called Fees Gone Wild.

Here is the first sentence of Bank of America's news release. The emphasis is added but the word is Bank of America's, not mine:

 "Bank of America today announced several changes to its checking account options and services that will help customers avoid EXCESSIVE overdraft fees and better manage their finances."

Gee, BofA, if your overdraft fees are "excessive" then why have them? Because they make a ton o' dough for the bank, literally tens of billions of dollars for the industry. But now, supposedly, Bank of America (JP Morgan Chase, too) have decided to give us all a break. Maybe.

The timing is not subtle. Congress, in its zeal to fix all things financial, is cracking down on bank services like credit cards that long have been perceived as consumer rip-offs. Right behind them are heavy bank charges like overdraft fees, long criticized for being designed not to help, but rather gouge, the consumer.

Senate Banking Committee Chairman Christopher Dodd says he will propose legislation to regulate overdraft fees that may reach $38 billion this year. More details here. So Bank of America, already under Washington's glare for its secretive handling of the messy Merrill Lynch takeover, is trying to make nice with a new and "friendlier" overhaul of overdraft fees.

Bank of America Corp. now says it will cap the fees it charges customers for overdrawing their accounts, backpedaling on the hikes the company imposed just this year. Starting Oct. 19, Bank of America no longer will charge overdraft fees when a customer's account is overdrawn by less than $10 in one day. A $35 fee will still be levied if the account isn't brought into balance within five days.

The bank also will limit to four the number of times an overdraft fee can be charged on an account per day. Just this year, the bank had raised that cap from five to 10. It also raised the fee this year for the first overdraft in a 12-month period to $35 from $25 -- a hike that still stands. The practical effect is Bank of America will charge customers who repeatedly overdraw their account by more than $10 on any given day up to $140 in overdraft fees rather than the former maximum of $350 in overdraft fees. What a bargain!

More important, Bank of America also said it would allow current customers an "opt out" -- to turn off the ability to spend when their account hits zero, starting Oct. 19. And next June, the bank plans to limit the number of times each year that current customers can overdraw their accounts when using a debit card at a store. It will let new customers choose whether they want overdraft protection when they are opening their account.

Here are several explanations of the new overdraft rules, all a bit different, which is a good signal that Bank of America's attempt to make things less complicated isn't working well. Here's the AP story, the New York Times story and the Washington Post story. You decide what makes the best sense. 

So if I understand this correctly, a bank customer can structure his or her account so that any transactions would actually be denied at the register if there was not enough money in a checking account to cover a purchase. That's a good thing, if the alternative is to be dunned for outrageous fees by the bank for letting you spend more than you have.

Before banks got too clever for themselves, they simply would not cover any check or transaction that did not have enough funds in an account to cover it. Then it would issue an NSF or non-sufficient funds notice -- we called them "bounced" checks --  and charge the customer a fee as a penalty for not managing their money.

Then banks decided to allow overdrafts. Banks would let customers buy stuff by check or debit card even though they did not have enough money in their accounts. Then the banks would assess overdraft and NSF fees galore, sometimes arranging the bounced checks in amounts by descending order to be sure the greatest number of overdrafts would occur and allow for charges.

Bank of America says it wants to make things simple again but reading the press release and Bank of America's list of personal fees -- so bureaucratic they may as well be written in Latin -- is laughable. And expensive if you mess up.

The unfortunate truth is banks, by allowing consumers to spend more than they have by check and debit card, created an entirely new and grotesquely profitable industry of servitude. Chronic overdrafts are not widespread but concentrated among the young and poor. Eighty-two percent of bank customers did not pay an overdraft fee in the previous twelve months, according to an August survey conducted for the Washington-based American Bankers Association. That means a small minority are coughing up billions to banks.

Want someone to become more disciplined and aware of spending and available funds? Deny the transaction. Stop giving them money they don't have then charging them staggering fees. Here's more detail about the overdraft trap.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:26am]


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