Bank of America says it is ending its practice of automatically charging consumers $35 when they make a debit card purchase that exceeds the funds in their account. Under the new policy, such purchases will be declined at the point of sale unless customers have requested overdraft "protection."
"Our customers have been clear that they want to know if a purchase is going to overdraw their account," said Susan Faulkner, Deposits and Card Product executive. "Our solution is simple, clear and helps customers control their finances by reducing the possibility of over-extending themselves at the point of sale with a debit card."
Nearly all banks provide what they call "courtesy overdraft protection" to their customers, whether they want it or not. While this policy allows the sale putting the account in the red to go through, it costs the consumer $35 per overdraft.
Most consumers have said they would prefer to have the purchase declined rather than be hit with a $35 fee, often assessed on a purchase that overdraws their account by only a dollar or two.
Bank America's move is widely seen as an attempt to get out in front of new Federal Reserve regulations that will severely limit the use of overdraft fees. Under the new Fed policy that takes effect later this year, customers must be allowed to "opt in" to overdraft protection. In other words, banks can't automatically provide it.
The new Bank of America policy takes effect June 19, 2010, for new customers and in August for existing customers, the bank said. The new Fed regulations go into effect July 1.
Sore point
Mandatory overdraft protection has long been a sore point with consumers, who have complained over the years that banks seemed to be exploiting any overdraft. For example, if a consumer were shopping and made five small debit purchases that all went over the amount of money in their account, the bank charged five $35 fees.
"We understand that the environment has changed, and we are changing with it," said Faulkner. "We will continue to make changes to our products, services and solutions that deliver more value to our customers by providing the clarity, control and choice they need to better manage their everyday finances."
While Bank of America's policy change is bound to please consumers, it could have an impact on the bottom line, since all banks have begun to rely on fees on customers for a big source of profits. Various financial analysts put the revenue generated by fees at between $30 billion and $40 billion per year.
Bank of America, for its part, says its new policy goes "above and beyond" the new government regulations. It is the second major bank to take this step. Citigroup has already adopted a similar policy.
