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Robert Trigaux

Seeking kinder image, Bank of America ends overdraft fees on debit card transactions



Debitcardbankofamerica Wake up and good morning. Hard to believe, but a big bank blinked. Bank of America -- aka Bank "Fee" of America -- has opted to stop charging customers overdraft fees on debit card transactions. What that means is, Bank of America will decline to approve a debit card transaction when it exceeds the amount of funds available in that customer's account.

This is BIG for several reasons:

* First, given BofA's size (it's a whopper in Florida's banking market, for example) the decision to stop debit card overdraft fees may prompt other banks to follow suit.

* Second, overdraft fees are a huge source of income to BofA and other banks -- one that has been targeted by consumer protection groups as a major rip-off and one that disproportionately slams customers who tends to have less money in their checking accounts, namely lower-income and younger folks.

* Third, Bank of America's image needs serious attention, and this move should help a bit. Is it a coincidence that BofA's action -- a voluntary decision to lose billions of dollars in overdraft fees -- comes just as Congress is about to focus on banking legislation that may (or may not) include a new consumer protection board at the federal level? Is  this BofA's way of saying, "See, Congress, banks can be responsible without more oversight?" (Let's pause to chuckle.)

* Fourth and finally, overdraft fees are perhaps the most outrageous example of banks manipulating the financial system to profit big over the small mistakes of individuals. Banks used to simply deny a transaction when there was insufficient funds in a customer account. That morphed into allowing transactions, however big or small, when sufficient funds were not available, then sticking to customer with an overdraft fee which these days can approach $35.

No wonder the New York Times story on this news starts with a reference to the $40 cup of coffee. That's $5 (it must be fancy coffee) for a cup of java, paid for by debit card on an account lacking enough money.  Then the bank socks the customer with a $35 overdraft. So $5 + $35 = a cup of coffee. Here's Bank of America's Susan Faulkner, the bank’s deposit and card product executive, telling the New York Times this new strategy is part of a broader push to build trust among its customers:

"What our customers kept telling me is ‘just don’t let me spend money that I don’t have.’ We wanted to help them avoid those unexpected overdraft fees."

So it's the "We're a gigantic bank and we're here to help you" scenario. Of course, this begs the question: Where were Bank of America's eager-to-listen ears over the past decade or two when customers were screaming over the same overdraft policy? Last fall and under mounting pressure, Bank of America stopped charging overdraft fees if an account was overdrawn by less than $10 in a day. It had also stopped charging overdraft fees on more than four instances per day. The fee was $35 per overdraft.

The new debit card policy starts June 19 for new accounts and at the end of August for existing accounts. Here's Bank of America's March 10 press release on the new policy. And here's the Wall Street Journal's take on the topic which notes Citigroup already has a similar policy in place.

In 2009, banks generated about $20 billion from overdraft fees on debit purchases and ATM transactions, and $12 billion more by covering checks and recurring bills, according to Moebs Services, an economic research firm.

Do not underestimate the power of potential federal legislation to motivate banks (or any industry) to finally stop milking their customers and do the right thing.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 11:27am]


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