Bank of America customers will soon be unable to
spend more than they have in the accounts linked to their debit
cards. It’s a step that may become a common move ahead of new
regulations limiting overdraft fees.
Rules set by the Federal Reserve that will ban banks from
charging such fees, without first getting permission from the
customer, are set to take effect July 1.
But Bank of America is going a step further than the regulations
require. It will simply no longer allow debit card purchases to go
through if there isn’t enough money in the account.
For ATM transactions, customers who try to withdraw more than
their balance will have to agree to pay a $35 overdraft fee before
they can get the money.
“The majority of our customers who overdraw their account do so
with everyday debit purchases,” said Susan Faulkner, senior vice
president of consumer banking for Charlotte, N.C.-based Bank of
America. “They’re doing this unknowingly, because they aren’t
aware that they are about to overdraft.”
Since the bank doesn’t have the ability to notify the customer
when they’re at the register and give them the chance to agree to a
fee, it will simply reject such transactions.
Consumers have demonstrated a willingness to pay overdrafts for
covering the mortgage and the car payment, said Greg McBride, who
follows the banking industry for Bankrate.com. “But not if it’s
things like covering a latte and a scone.”
The bank’s new policy will kick in on June 19 for new accounts,
and in early August for existing accounts. It will replace the
bank’s current terms, which allow overdrafts to go through but only
charge a fee if the deficit is greater than $10.
Bank of America likely won’t be the last to make the change.
That’s because while the new rules will save consumers from
surprising dings on their accounts, they will also cut deeply into
the more than $1.77 billion annual revenue overdraft fees generate
for the banking industry.
Faulkner would not estimate how much such fees pulled in for
Bank of America in the past.
The Federal Deposit Insurance Corp. estimates about 41 percent
of that total is from point-of-sale debit transactions. About 8
percent was from ATM transactions. The rest were from bad checks
and online bill payments, which are not addressed in the
What’s more, 93 percent of overdraft fees are generated by just
14 percent of customers.
Because most of the fees were paid by what Robert Meara, a
banking analyst with the consultant Celent, called “serial
overdrafters,” the rules may not save the average consumer much
money. In fact, because banks will look to make up that lost
revenue, it may actually cost most individuals more.
“What this may do really is produce the unintended consequence
of creating the demise of free checking,” said Meara. Banks jumped
into free checking in the last decade because of competition, but
at the same time started allowing overdrafts that generated huge
sums. If they can’t charge those fees, it’s likely they won’t offer
the free products anymore either.
Or, he suggested, consumers might start seeing deals advertised
where free checking kicks in after a certain number of
transactions, or if a customer has several accounts linked
“I think banks will use this as an opportunity to be creative
and differentiate themselves in ways that was really hard to do
when everybody had a free checking account,” Meara said. “There’s
a way this can be a win-win for everybody, but in the short term I
think it’s going to be challenging for banks to make up for that