Bank of America announced that starting in May it will reduce its overdraft fee – the fee a customer pays when their bank account has reached a negative balance – from $35 to $10.
The bank will also eliminate its transfer fees associated with its Balance Connect overdraft protection service, according to the Jan. 11 press release. He said with these adjustments, there will be a 97% reduction in Bank of America’s overdraft fee revenue since 2009.
“Over the past decade, we have made significant changes to our overdraft services and solutions, reducing customers’ reliance on overdraft and providing resources to help customers manage their deposit accounts and overall finances responsibly. Holly O’Neill, Bank of America’s president of retail banking, said. “Throughout the process, we have relied on our National Community Advisory Council (NCAC) for guidance and feedback on our changes. These final steps will further support our customers and empower them to create financial well-being at long term.”
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More banks should follow suit to eliminate overdraft fees, expert says
Bank of America is not the first bank to make this kind of change to its overdraft policy. In December, Capital One became the first bank in the top 10 and the sixth retail bank in the United States to not charge overdraft fees. And an expert says he hopes it will encourage other banks to follow suit.
“The cost of processing NSF [non-sufficient funds] has declined significantly in recent years, and banks that use the high cost of repeated overdraft fees to boost their profits are helping to drive low-income, working Americans out of the banking system,” said Mike Calhoun, president of the Center for Responsible Lending (CRL), said. “Bank of America’s decision should spur more banks to take this important step to eliminate customer concern that an inadvertent overdraft of their account will result in excessive overdraft or NSF charges that further threaten their economic stability.”
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Regulators crack down on overdraft fees
These bank decisions come as the Consumer Financial Protection Bureau (CFPB) has become increasingly critical overdraft charges, calling them “abusive”. The bureau released a report on December 1, which showed that banks have become increasingly dependent on overdraft income. In 2019, he said total overdraft revenue reached about $15.47 billion. That year, JPMorgan Chase, Wells Fargo and Bank of America brought in 44% of the total.
“CRL urges all financial institutions to eliminate bank overdraft fees,” Calhoun said. “We also urge federal financial regulators – the Office of Consumer Affairs, OCC, FDIC, Federal Reserve Board and NCUA – to take action to protect consumers from harmful overdraft practices. It would be unrealistic and unacceptable for financial regulators to assume that financial institutions on their own solve the systemic problem of harmful overdraft practices.”
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