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Robert Trigaux

Bank overdraft fees out of control?



Wake up and good morning. I'm not sure this will win Bank of America the friendly bank of the week award, but it's decided to suspend a previously announced hike to its overdraft fees. So what was to be a $39 overdraft fee (charged when you exceed your checking account balance) will remain a mere $35 fee.

Gee, I feel warm and fuzzy all over. According to the Wall Street Journal, (subscription required), Bank of America on Monday, citing the "increase in unemployment," said it was suspending that increase and keeping the fee at $35. What a bargain. Overdraft fees have soared because banks make huge bucks off milking customers for "non-sufficient funds" in checking accounts. The fees can be especially mercenary to customers who write multiple checks that, processed by the bank from largest to smallest amounts, can trigger the largest number of overdrafts in succession. 

Industry wide, overdraft fees averaged $28.95 last year, so BofA is clearly pushing the envelope as a major bank in raising fees to such stratospheric levels. That assumes you can even find disclosure of the overdraft fee in an increasingly hard-to-navigate BofA Web site. Wells Fargo, which is taking over Wachovia and will start swapping in its signs in Florida this spring, isn't much better in clear fee disclosures.

This is the same Bank of America whose customers claim the bank illegally took overdraft fees out of their Social Security direct deposits. Those customers have asked the California Supreme Court to reinstate a verdict worth as much as $1.6 billion.

According to the Journal, banks' overdraft programs -- in which the bank automatically covers any account shortfalls but charges a fee -- have come under increased scrutiny. Congress is considering legislation that proposes sweeping changes, such as requiring banks to notify customers at automatic teller machines or point-of-sale terminals if they're about to trigger an overdraft and give them the chance to cancel the transaction, or accept the overdraft service and associated fee. Meanwhile, the Federal Reserve is examining whether banks' current handling of overdraft fees needs to be changed.

What's most galling is that overdraft fees are big contributors to banks' bottom lines, accounting for as much as 75 percent of the industry's consumer-fee income comes from overdraft and insufficient-funds charges, according to Moebs $ervices Inc., an economic research firm in Chicago. Moebs, the Journal reports, expects banks and credit unions to reap over $40 billion in such fees this year.

Many banks are also adopting tiered-rate structures that assess a lower penalty for first-time occurrences but quickly ramp up the costs for repeat offenders. Over the next several weeks, according to the Journal, SunTrust Banks will adopt a tiered overdraft fee structure -- kudos to SunTrust for a straightforward Web site on fees -- for its free checking accounts, charging $25 for the first item and $36 for subsequent overdrafts. Previously, the bank had charged a flat fee of $35

--Robert Trigaux, Times Business Columnist


[Last modified: Tuesday, June 1, 2010 11:24am]


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