Under pressure from Capitol Hill and consumers, Bank of America and JPMorgan Chase are easing up on overdaft charges and other fees.
Banks make billions of dollars per year in revenue from overdraft charges, in many cases levying them on customers who didn't even know they had -- and had never asked for -- overdraft protection. But with Congress considering proposals to impose reforms, banks are trying to get in front of the problem with reduced fees and more lenient terms.
Bank of America said that, beginning Oct. 19, it will:
• Not charge Overdraft item fees when a customer's account is overdrawn by a total amount less than $10 for one day
• Not charge overdraft fees on more than four items per day;
• Improve the process for customers to opt out of overdraft capability;
• Offer customers a "Clarity Commitment" that spells out in clear, unambiguous terms what customers can expect from their deposit relationship with Bank of America.
Effective June 2010, the bank will:
• Introduce an annual limit on the number of times customers can overdraw their accounts at the point-of-sale when they do not have sufficient funds to cover their transactions
• Contact customers who are nearing the annual limit to provide education and tools to help them better manage their finances
• Limit overdraft capability, and therefore fees, for customers who reach the annual limit
• Provide new customers the choice to opt into overdraft capability at account opening.
Chase said its new policies, when fully effective, mean that customers "won't pay big fees for small mistakes." The changes will apply to all current and new customers and will include:
• Eliminating overdrafts for debit cards unless the customer opts in to overdraft services;
• Modifying posting order to recognize debit-card transactions and ATM withdrawals as they occur;
• Eliminating overdraft fees if a customer's account is $5 or less overdrawn'
• Reducing the maximum number of overdraft fees per day to 3 from 6.
"Customers will be given the opportunity to decide whether they want to participate in Chase's debit-card overdraft services," said Charlie Scharf, head of Retail Financial Services at JPMorgan Chase. "We believe it's important to give all 25 million existing debit card customers, as well as new customers, the ability to decide whether to opt in. We expect many of our customers will continue to find these services very useful."
Chase will continue its current policy of not allowing customers to withdraw more cash from an ATM than they have available in their account.
Chase will update customer accounts and balances for debit-card purchases and ATM withdrawals as they occur. "The new posting order will be more logical for customers, and they will incur fewer fees," Scharf said.
In addition, Chase said it will continue to offer overdraft protection for customers who link their checking account to a savings account, credit card or home equity line of credit. Millions of customers use this for peace of mind in case they forget to record a transaction, make a subtraction error in their checkbook or lose track of the dates of direct deposits or automatic debits.
Chase said it expects to implement these changes in the first quarter of 2010.
Not all bankers are taking consumer restlessness to heart. Dan D. Graham, president of Flora Bank & Trust, Flora, Ill., responded angrily to an earlier story, Bulls Eye on Bank Overdraft Charges.
"I find it amusing that no banker, or bank association, was contacted for information, and certainly not a community banker. Your article was misleading on many fronts, and down right (sic) biased and disingenuous for the most part. Here are the facts as they relate to our bank, and for the most part the industry as a whole," Graham wrote.
Graham listed these "facts:"
1. You assert that banks let customers overdraw their accounts without their knowledge. BULL! First and foremost it is the customers responsibility to manage their checking account. Who else is going to know if they have money in their account besides them when they write a check? Once again though we are taking personal responsibility out of the individuals hands, blaming someone else, and asking the government to control our lives. Can you get Senator Dodd to remind me to go to the bathroom; Im not smart enough to do it myself?
2. There is a cost involved to the bank, and a charge will apply even if the check is returned. In a lot of cases if the check is returned the merchant charges a fee that is often higher than the banks. When are you going to go after them? By paying the item and charging a fee, we in a lot of cases end up saving the consumer money.
3. I guess its ok for the Check Cashers, who would replace this service to charge enormous amounts of interest.
4. We notify our customers before they get the service, and give them the opportunity to opt out; in fact, they can opt out at any time. The fees associated with an overdraft are also disclosed to customers at account opening and again annually. We have had very few customers opt out, or complain. In fact we have a far greater number of customers thank us for the service.
5. You make it sound like American families are getting deeper into debt due to overdraft fees. Fact is, our overdraft fees are down considerably this year as people tighten their belts, and manage their finances better. Point: People can manage their finances and avoid fees, they simply choose not to.
Clock is ticking
Graham's assertions aside, Congress is hardly known for its antipathy towards the banking industry, but lawmakers have been getting an earful from constituents and fear for their political lives if they are seen as not doing anything to protect consumers. Senate Banking Committee Chairman Christopher Dodd (D-CT) has already announced that he is working on legislation.
"Overdraft protection programs" let customers overdraw their accounts, without their knowledge, when they use checks, electronic transfers, debit card purchases, and ATM withdrawals. Account holders are often enrolled in the programs without their consent and many banks will slap customers with fees of upwards of $30 for this "courtesy" even if their account is only overdrawn by a few cents.
It is a service most customers do not know they have and may not want. According the Center for Responsible Lending (CRL), 80 percent of consumers would rather have their transaction denied than have it covered in exchange for a fee.
A recent survey released by the Consumer Federation of America found the median overdraft fee is $35. The highest is $39, charged by Citizens Bank for the third overdraft in a year. Fourteen of the sixteen largest banks charge $35 or more per overdraft, either initially or after a few overdrafts in a year.
Nine of the largest banks surveyed charge tiered overdraft fees, escalating the cost of more than one or two overdrafts over a year. For example, Regions Bank charges $25 for the first overdraft, $33 each for the second and third, and $35 each for four or more.
The Financial Times reported that banks stand to collect a record $38.5 billion in fees for customer overdrafts this year. The most cash-strapped customers are the hardest hit, with 90 per cent of overdraft fees coming from ten percent of checking account holders. According to CRL, banks collect nearly $1 billion per year in overdraft fees from young adults and $4.5 billion from senior citizens.
ConsumerAffairs.com has received thousands of complaints about overdraft charges. Among them:
• Vesta of Sacramento, California, who writes, "Provident extended me $500.00 courtesy pay on my checking account for being a long time customer. So, if I have an overdraft, the courtesy pay will cover it. But, the problem is, every time I have an overdraft and courtesy pay pays it, they charge me $23.00 fee. If I'm one cent overdraft, courtesy pay will pay it and charge me $23.00 fee."
• Reginald of Washington, DC, tells ConsumerAffairs.com that he has been charged two overdraft fees of $35.00 each by Chevy Chase Bank. "The two charges," he says, "were for amounts of $3.08, and for $1.05. These charges were made prior to a $4.94 purchase at McDonalds. If there was an overdraft, it should have been only one and that should have been for the $4.94 purchase since it was the last purchase." Reginald says a representative of the bank with whom he spoke, "was of absolutely no help whatsoever."
"Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet," said Dodd. "I am working on a bill to protect consumers from these fees."
Dodd's bill will require customers to "opt-in" to these programs, prohibiting banks from charging consumers overdraft fees without their consent.
CRL President Michael Calhoun expressed his organization's support for President Obama's call for the creation of a new agency to bring oversight to the financial services industry.
"The regulators responsible for making our financial system work have failed," said Calhoun. "We urge Congress to act quickly to create the Consumer Financial Protection Agency so that individual Americans, who account for nearly $7 out of every $10 spent in the economy, can put the money that financial institutions unfairly siphon off to more productive purposes, like buying beneficial goods and services and saving for the future."
Bank of America, Chase Rush to Cut Fees as Congress Gets Restless...