Bank of America Lays Down the Gauntlet: Ends Overdraft Fees on Debit Cards
March 10, 2010
(ChattahBox)— In a bold move that has surprised many in the financial world, Bank of America announced on Tuesday that beginning this summer, debit card holders would no longer be charged with hefty overdraft fees, when they don’t have enough funds in their account to cover a purchase. This move comes ahead of new federal regulations that will soon force banks to obtain permission from its customers, before imposing overdraft protection. Many debit card customers found that when using their cash-poor card to buy a cup of coffee, they ended up paying $40.00 for the privilege of avoiding the embarrassment of having their card declined. Bank of America’s new policy will cause the nation’s largest issuer of debit cards, to lose billions of profits in overdraft fees. But the bank plans to make up for the loss of overdraft fees, by building customer goodwill and, by more evenly distributing bank fees. Now, the big question is: Will other banks follow suit?
Bank of America’s statement released to the press, pointed out that debit card customers have spoken and they don’t want to be hit with excessive overdraft fees, when they can least afford it:
“This change will help customers by reducing the likelihood they may inadvertently overdraw their account and thus eliminate unexpected overdraft fees on these transactions. Customers will still have the choice to link their checking account to another account through Overdraft Protection to cover these types of transactions. 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.”
Bank customers who still want overdraft protection can request that their checking account be linked to a savings or other account through the Overdraft Protection program. And Bank of America is recognizing that it can no longer reap obscene overdraft fee profits from its lower income customers in the middle of a deep recession. “We understand that the environment has changed, and we are changing with it,” added Faulkner.
According to The New York Times, debit card purchases account for nearly 60 percent of overdrafts at Bank of America. “Last year alone, banks generated about $20 billion from overdraft fees on debit purchases and A.T.M. transactions, and $12 billion more by covering checks and recurring bills, according to Moebs Services, an economic research firm.”
And the majority of customers filling the coffers of the nation’s banks with billions in overdraft fees are among the poorest in our society:
“In the case of overdraft, 93 percent of the fees are generated by just 14 percent of the customers who exceed their balances five times or more a year, according to a 2008 study by the Federal Deposit Insurance Corporation. Three-quarters of customers are not charged overdraft fees at all, the study found.”
Bank of America’s new overdraft policy on debit card purchase will take effect on June 19 for new customers and in early August for existing customers.
Source: The New York Times.