Bank of America Reduces Account Overdraft Fees

NEW YORK (AP) – Bank of America has reduced the amount it charges customers when they spend more than they have on their accounts and plans to eliminate its charges for bad checks entirely.

NEW YORK (AP) – Bank of America has reduced the amount it charges customers when they spend more than they have on their accounts and plans to eliminate its charges for bad checks entirely.

It’s the latest move by the nation’s largest banks to reduce overdraft fees they have long charged customers, fees that often run into the hundreds of dollars a year for frequent overdraft users.

The Charlotte, North Carolina-based bank will reduce the overdraft fee it charges customers from $ 35 to $ 10 starting in May. It will also stop charging insufficient funds fees – which are taken when it rejects a transaction – better known as a check rejection.

While checks are no longer widely used, bounced charges can come from automated payments such as utility bills. Bank of America, the country’s second-largest bank, says about 25% of its overdraft / NSF fee income comes from NSF fees each year. Overdraft fees typically arise when a person makes a purchase with a debit card that exceeds the cash available in their account.

In total, Bank of America estimates that these measures will reduce its overdraft fee income by 97% from 2009, the year before it began to take incremental steps to limit overdraft fee income.

“This is the last leg of the journey we are on,” said Holly O’Neill, president of retail banking at BofA, in an interview. “We have good financial solutions for clients without them having to rely on overdraft, but we will always have overdraft if necessary.

Consumer groups and politicians applauded the measure, especially with the size of Bank of America as the nation’s largest consumer banking franchise.

“I’ve been working on reducing or eliminating overdraft fees for 20 years and to give them credit they’ve really listened,” said Martin Eakes, CEO of the Center for Responsible Lending. “This could potentially have hundreds of millions of dollars staying in customer accounts instead of going to fees.”

It remains to be seen whether the decision by BofA – a leader in the retail banking industry – to cut overdraft fees will pressure other banks to take similar action.

“Banks will take different approaches. Some will eliminate them, reduce them, others will remain in denial of the degradation of these fees. But now they’re under competitive pressure, ”said Lauren Saunders, associate director of the National Consumer Law Center. “Any bank that does not seriously consider reforming its overdraft practices is hurting itself in the long run.

The bank is also eliminating two small fees. It will no longer allow customers to overdraft their ATM accounts and will eliminate the $ 12 fee it charged customers when the bank automatically transferred money from one account to another to avoid an overdraft, often transferring from money from a long-term savings account to primary control of clients.

The overdraft stems from the fact that banks provide a paid service to customers who may not have balanced their checkbook properly and want a bank to honor a purchase. But the widespread use of debit cards has turned this courtesy into a common source of income for banks. If a customer ran out of funds in their account, a $ 5 coffee could end up costing $ 35 due to overdraft fees.

Overdraft fees have become lucrative for the industry, but at the same time have made banks a target for consumer advocates and regulators. After the financial crisis, Democrats instructed the Consumer Financial Protection Bureau and other regulators to limit income from overdraft fees. President Biden’s CFPB has decided to review overdraft fee practices.

“For many large banks, overdraft fees are still the stable, reliable, predictable and easy income shareholders love,” said Rohit Chopra, director of CFPB, in December.

Senator Elizabeth Warren, D-Massachusetts and longtime critic of banking practices such as overdraft fees, called BofA’s announcement “a step in the right direction” on Twitter.

“The big banks should completely eliminate these fees,” Warren said.

Senator Sherrod Brown, D-Ohio and Chairman of the Senate Banking Committee, called BofA’s move “a good first step towards the complete elimination of bank overdraft fees.”

For years, BofA has gradually reduced its overdraft fee practices. It got rid of overdraft fees associated with debit card purchases in 2010 and created a checking account in 2014 that did not allow customers to overdraft. The SafeBalance account is now the account most often opened by the bank.

But BofA and the industry as a whole weren’t ready to completely get rid of overdraft fees until recently. Many banks froze fees charged to customers in the first year of the pandemic, and the industry has consistently posted record profits. While overdraft fees fell for the first time in six years in 2020, the industry still collected more than $ 30 billion in fees from such practices that year.

So, from 2021, some big banks started to announce that they were removing overdraft fees altogether. Ally Bank, PNC, Santander and Capital One have been among the largest regional banks to effectively eliminate overdraft fees. JPMorgan Chase has also relaxed its overdraft practice, giving clients more leeway to go negative in their accounts before fees are charged.

Bank of America will release its fourth quarter results on January 19, which will give investors and the public a year-round view on how much the bank is still reporting fees like overdrafts.


Ken Sweet covers consumer banking and financial matters for the Associated Press. Follow him on Twitter at @kensweet.


This story has been corrected to show that Lauren Saunders is the associate, not executive, director of the National Consumer Law Center.

Ken Sweet, The Associated Press

Carol N. Valencia