Bank of America won’t charge overdraft fees
LOS ANGELES — Bowing to complaints of fee gouging, Bank of America said Wednesday that starting this summer it would deny transactions for customers using their debit cards if they didn’t have funds in their account to cover the charge.
The statement from the Charlotte, N.C., bank, the top issuer of cards to Americans, means Bank of America joins New York’s giant Citibank in backing off overdraft fees on debit card purchases. With federal rules regarding the fees already set to tighten this summer, the decision could pressure other big card issuers into following suit.
Debit cards allow consumers to access funds in their checking accounts. Consumer advocates had described the overdraft fees as a form of high-interest lending, because a customer could be charged a $35 overdraft fee for a $5 purchase — a fee the banks would recoup automatically the next time the customer made a deposit.
Overdraft fees on debit cards and ATM transactions account for about half of all overdraft fees, which total nearly $24 billion a year, the Center for Responsible Lending said Wednesday in a statement applauding Bank of America’s action.
“Bank of America’s decision will allow millions more Americans to use their debit cards without fear of being driven into high-cost debt,” the group said. “As the largest debit card issuer, Bank of America stands to lose the most in overdraft fees by stopping this unfair practice. Other banks should promptly follow suit.”
Bank of America and most other big banks had said they were doing consumers a favor by signing them up for automatic overdraft protection. But in a statement on the overdraft change Wednesday, the bank changed its tune.
“Our customers have been clear that they want to know if a purchase is going to overdraw their account,” said Susan Faulkner, the bank’s deposits and card product executive.
Customers would have the option of linking their checking account to another account at the bank that could provide overdraft protection for debit card transactions — for a fee, of course.
The bank already alerts customers using ATMs when a withdrawal would overdraw the account, saying they’ll be charged $35 if they take out money anyway.
The change in the debit-card overdraft policy gets Bank of America out ahead of a federal rule change that takes effect July 1.
The Federal Reserve decided last fall to allow ATM and debit card overdraft fees, but only if customers notified the bank in advance that they wanted the balance-busting transactions go through.
Overdraft fees typically range from $10 to $38 for each transaction, according to a 2008 study by the Federal Deposit Insurance Corp.