Bank of America will reduce the amount it charges customers for account overdrafts to $25 starting in May, significantly reducing fees that cost customers a few hundreds of dollars each year.
The bank, based in Charlotte, North Carolina, also plans to eliminate non-sufficient funds (NSF) fees from customers when it declines transactions, also known as check bouncing.
“This is the final leg of the journey we are on,” Holly O’Neill, president of retail banking for the bank, said in an interview. “We have good financial solutions for customers without relying on overdrafts, but we will still have overdrafts when needed.”
Bank of America, the nation’s second largest bank, currently charges $35 in overdraft fees, but plans to reduce the total to $10. Meanwhile, even though checks have become much less common, banks may still charge NSFs on account of automatic payments such as utility bills or membership fees.
The bank said that about 25 percent of Bank of America’s overdraft and NSF fee revenue each year comes from NSF fees. With its planned moves, Bank of America estimates it will reduce its overdraft-fee revenue by 97 percent since 2009, when the bank began taking steps to curb such revenue.
For years, it was common that a large bank would increase the fee charged for overdrafts, forcing other banks to respond in kind. It remains to be seen whether the decision to cut overdraft fee by retail banking industry leader BofA will put pressure on other banks to take similar measures.
The bank is also eliminating two small fees. It will no longer allow customers to overdraft their accounts at ATMs and will eliminate the $12 fee charged by banks for automatically transferring money from one account to another to avoid overdrafts, which are often Transfers money from long term savings account. Preliminary checks of customers.
Overdrafts have their origins in banks providing a service for a fee to customers who have not balanced their checkbooks correctly and want the bank to honor the purchase. But the widespread use of debit cards turned this etiquette into a regular source of revenue for banks. If a customer’s account is short of funds, a $5 coffee can cost $35 because of an overdraft fee.
Overdraft fees became attractive to the industry but also made banks a target for consumer advocates and regulators. After the financial crisis, Democrats hired the Consumer Financial Protection Bureau and other regulators to rein in overdraft fee revenue.
Over the years, BofA has gradually cut back on 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 didn’t allow customers to overdraft. SafeBalance account is now the most widely opened account of the bank.
But BofA and the wider industry were not ready to get rid of overdraft fees completely until recently. Many banks froze fees charged to customers during the first year of the pandemic, and the industry still posted record profits.
So from 2021 onwards some big banks started announcing that they are waiving overdraft charges completely. Large regional banks that effectively eliminated overdraft fees included Associate Banks, PNC, Santander and Capital One.
The Associated Press contributed to this report.