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Bank of America ends unpopular debit card overdraft fee

Bank of America will soon drop $35 fees for customers  who overdraw on their debit cards. Instead, it will  decline any debit card deal lacking sufficient funds.

Associated Press (2009)

Bank of America will soon drop $35 fees for customers who overdraw on their debit cards. Instead, it will decline any debit card deal lacking sufficient funds.

Bank of America just pulled a cultural 180-degree turn by ending a most unpopular fee. Look for more banks to follow its lead.

How timely. Congress begins to focus on banking legislation that may include a new federal consumer protection board. And the Federal Reserve sets new rules on certain fees this summer.

Bank of America, a dominant player in Florida's banking market, said Wednesday it will stop charging $35 fees for overdrafts created when customers make purchases using their Bank of America debit cards.

Instead, Bank of America now says it will decline any transaction involving a debit card if a customer's checking account does not have sufficient funds. Before, the bank allowed any debit card transaction, no matter how small, to proceed regardless of the lack of funds in the account, and then dunned the customer $35 for each underfunded purchase.

Some customers discovered they were charged hundreds of dollars in overdraft fees in a single day for small purchases.

Like most banks, Bank of America profited richly from its vast menu of overdraft and other fees. 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, says the research firm Moebs Services.

How will Bank of America make up all that revenue it will lose from eliminating overdraft fees on debit cards? Banks frequently test new fees. Many have annoyed customers, such as charging extra for doing business with a live teller or visiting a safe deposit box too often.

Bank of America plans to elaborate on its new revenue strategy in April when it reports earnings.

Susan Faulkner, Bank of America's "deposits and card products" executive, on Wednesday outlined the bank's new policy to end debit card overdrafts and took questions from the media. She says the bank, after "researching the changing behavior of its customers," now wants to help when customers "unknowingly incur" overdraft fees.

"What they told us," Faulkner said of her bank's customers, "is 'Do not let me spend money I do not have.' "

So, I wonder, before this new research, does it mean Bank of America operated on the premise that customers wanted to spend money they never had and have the bank keep them in the dark while they did it?

Bank of America's change in overdraft policy affects only debit card transactions. Customer who write checks with insufficient funds still face overdraft charges.

Faulkner says Bank of America's debit card customers have some options. Bank of America ATMs will soon tell customers if they lack the cash to make a withdrawal (rather than just handing them the money, triggering a fee) and first offer the option to pay a $35 overdraft fee to receive the requested cash.

Of course, customers still can avoid any overdraft fees by linking checking accounts to savings accounts or even credit cards.

Kudos to Bank of America for at last coming to its senses on ending a fee that so symbolized customer gouging. But add a Bronx cheer for ignoring for decades the consumer advocates who criticized the industry's overdraft-fees-gone-wild mentality.

Robert Trigaux can be reached at

Bank of America ends unpopular debit card overdraft fee 03/10/10 [Last modified: Thursday, March 11, 2010 3:16pm]
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