Associated Press | 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 move that may become common ahead of new
regulations limiting overdraft fees.
The Federal Reserve’s rules banning banks from charging such
fees are set to
take effect on 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 is the first big bank to announce such a change, but it likely won’t be the last. 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 regulation.
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 together.
“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 lost revenue.”
WOW! A bank with some ethics!!! Way to go!
This whole thing is outrageously dumb. Here in Canada as part of my monthly bank fees I get overdraft protection up to $1000. When I overdraft by $50 and I cover that a day or so later, it would cost me about 5 cents in interest.
Further, by keeping a balance of $3000 in a savings account, the monthly fees are waived. 0. No cost.
Americans need to wake up and demand more from their banks.
I’m no fan of B of A but it makes sense. No business, no matter how much the government vilifies them, exists by giving away free money. Allowing the customer to “opt out” (which usually results in getting the card cancelled) was a dream-come-true to those who habitually spend more than they have, which usually ends up costing the rest of us more.
Now if we can get the Congress to be more responsible with our money.
Big deal. I’ve had an ATM card with them since 87. You didn’t have the funds, you couldn’t put your account into negative no matter what, until they changed the rules. You then could make a purchase with your card and go to an ATM and not see that recent transaction – and be lead to believe you still have money to spend and put your account further into negative and ring up more overdraft fees.
These fees have always been rediculous. I’ve always avoided them by doing a budget and keeping more money in my account than is in the budget. What a concept.
When I was attending University and living in Chicago, I opened a B of A account in order to use a local bank. Big mistake. B of A was never timely with my Direct Deposit. As a result, I went into Jewel to make a purchase, card was accepted, and I went home happily with my groceries. Several days later I get a notice from B of A that I had overdrawn my account and was being charged. When I realized my debit card allowed such things to happen, I paid the fee out of my savings, then closed both accounts and went back to using my downstate bank. My downstate bank never allowed such things to happen. If the money wasn’t available, the card wouldn’t work. Then I either had to transfer money from my savings or wait until my paycheck was deposited.
@Chicago Dude, this isn’t a “bank with ethics.” This is a response to a federal mandate. Chase is doing the exact same thing, with the exception of I can now “sign up” to allow the previous behavior.
Also, free checking has existed a lot longer than BofA and Chase want you to believe. I had a free checking account 16 years ago, with a locally owned bank. But this was slightly before the robber baron mentality that currently governs multinational banks showed up.
This is long overdue. I’ve literally been charged separate $39 fees for each the movie and the popcorn. Stop the insanity.
Looks like a business opportunity to me.
Those fees are the reason I left Bank of America. I was always meticulous about my checking account balance, until they charged me for 5 over-drafts (at $39 per) after they held a CASH DEPOSIT for 5 business days after I put it in the bank! I deposited $5000 in cash after a car sale, that was US CURRENCY, and the following week I used the debit card 5 times in two days. I found out that BoA had held the deposit pending “verification of funds.” When I called the customer assistance number and talked to “George” in India, he “please read the agreement for your account with the bank. We are not required to release funds until they are verified.” I asked what part of a CASH deposit needs to be verified, he just repeated those words over and over, and “No, we will not reverse any of the over-draft charges.” I ran as fast as possible to my local credit union, and switched over every account I had, including my home equity loan. Have not regretted that move for one day!
QUOTE FROM JeffRob: “This is long overdue. I’ve literally been charged separate $39 fees for each the movie and the popcorn. Stop the insanity.”
So you think it is the government’s job to protect you from managing your money poorly?
ummmm…dont spend what you dont have. whats the big deal???? MORONS!
I work at a bank and you can get overdraft protection…as long as you’re credit worthy. I have also opened accounts for customers that are offered overdraft protection and decline it, but then they are the first to complain when the get a fee. I don’t necessarily agree with the amount of money the overdraft fees can be but the bottom line is…balance your check book, including debit transactions!!
I love how so many people blame the bank for getting charged an over draft fee. The only reason you were charged the fee is because you spent more than you had. Even if the ATM does not show you the transaction that occured 2 hours earlier you should know how much money you have in the account before you go spend money and then be able to do the math to subtract what you just spent from what you had. There is these things called check book registers that have been around as long as checking account, these people should think about using it.
This applies only to those chumbolones who still do business with Bank of America, although maybe now a few of them will decide they can do better.
Way to “own the podium” with that ignorant statement, Alex. Overdraft protection is not unique to Canada but typically requires a worthy credit rating to be eligible.
Additionally, many banks here offer free checking with an interest rate and overdraft protection without having to maintain a minimum balance.
Chase now answers customer service inquiries from Manila. I refuse to have my financial affairs handled outside the jurisdiction of the United States and always ask for a representative inside this country. I always have been accommodated.
I found the best checking accounts are from Fidelity Investments and Charles Schwab. Everything is free, including the checks and postage on pre-addressed deposit envelopes. They even refund all ATM surcharges so I can use Chase or Bank of America ATM’s without the silly rules and fees. I only now use a Chase account to deposit large checks, count coins, obtain large amounts of cash, and get the occasional cashier’s check.
OH NO…. making people responsible. AHHHHH…what is this world coming to???????
All you people deserve what you get. I bet you also text while you drive your SUV and get many tickets from red light cam. Thank God for people like you.
Bank of America is going down. People are moving their money and accounts out in droves and going to their local community banks. And this is the way it should be. Good-bye B of A. You’re game of “gotcha” will be your downfall.
What a revolutionary idea….people can spend only what is in their account? A rational person would have done this for years.
I love these “big bank” people…..they’re celebrating like there is now tomorrow over this discovery!!! That’s like awarding someone for doing the dishes or taking out the garbage!
B of A is not the only bank to make these changes or charge these fee’s. Community banks also charge these fee’s and will be changing the overdraft policy as well. Bottom line keep track of your money if you choose to overdraft your account be willing to pay the overdraft charge. What people fail to realize is that banks are a buisiness to and have to make a buck just like everyone else.
Love the outrageous-bank-gotcha-fees defenders out there. Because if you deposit cash, you need to wait to withdraw any of it or be penalized if you do. 25 years ago, it took 5 days to clear an out of state check with technology used back then, but 5 days to clear a cash deposit today? What part of this simple concept you’awll not getting or how do you believe it’s right? Unless you came up with the idea and get kickbacks from those fees.
Great! I love how this country keeps catering to the irresponsible and stupid people! Lets keep allowing poeple to live beyond thier means. It’s ok, the rest of us hard workinging Americans who are financially resposible will end up having to pick up the tab at some point.
RomanB, how are tehy gotcha fees? You make it sound like they are hiding something on you, they are not. They are charging you a fee to allow you to spend $ you dont have.
Cycler21,
I love how the Indians make up American names so maybe we assume they are in an office in New Jersey or San Diego or something. The thick accent and the 50 cent an hour salary-like attention from them gives it away!
Honestly, while I agree that some of the fees are high, keep a register and manage responsibly. If you’re overdrawing, do you honestly expect not to pay fees? Be accountable for your own funds, manage them, and don’t spend more than you have. If you, for some reason, need to use your debit card with insufficient funds in your account for the purchase of gas to get home, etc, don’t expect not to pay a fee.
Don’t rush to blame the banks all of the time. They are essentially paying your items and giving you a “loan” of sorts. Many people in this country need to get out of the mindset of, “I want it, I have this card, I don’t know if I have the money, but hey, I’ll buy it.” More government intervention. Great
I agree cash should be available when it is deposited ( it is at my bank ) But people should also read the account disclosure when opening the account so they are aware of all the stipulations. Why is it know one thinks they should be held accountable for their actions of lack of actions?
I’ve had a debit card for 15 years and no idea you could EVER go over your limit using them. What?!?
Just speaking to people who think all people who overdraft are irresponsible. All it takes is one big EFT to come out a day earlier than it’s supposed to and bam comes out the fees. One trick my bank likes to do (and most are the same) is cover the large transaction first, even though the smaller debit card purchases were made days earlier,then charge you a separate fee for each little transaction. Luckily, I wrote a letter to the bank explaining what happened and how I saw it as unfair to not cover transactions already approved and that if they had ran the large one through last I would only owe one fee. They then refunded all fees except for one. I keep an eye on my bank almost daily now in case I need to transfer money.
Not saying if you overdraft your account you are not a responsible person. I overdraw my account on occasion but I don’t get angry when I get charged a fee. If I have an emergancy and need to spend money I don’t have I’m ok with getting charged a fee.
I have had a checking account since I was 18 years old. Have I incurred overdraft fees: Yes. Why? Because I managed my money stupidly when I was very young, however, I have successfully managed it without incident for a good 15 plus years. I marvel at the ‘I was charged after a cash deposit’ story and those like it. I’ve deposited cash, checks, money orders…made withdraws, purchases, etc….often multiple and varied transactions on any given day and not ONCE have I had the trouble I hear about from the belly-achers who chime in when bank’s policies are brought up. I know the truth hurts, but does it hurt so much you stick your head in the sand and perpetuate stories just to make yourself feel better about your lack of banking skills?
There is no reason in this time of advanced computing and communications that ANY credit/debit card should be allowed to let a customer go over the limit. At All. Why this is not law astounds me. Well, no so much they do have one of teh BIGGEST LOBBIES in Washington.
I think some of the judgemental posts here are way off base. You do not have to be irresponsible or a moron to accidently overdraft your account. I worked in banking for years and there are a LOT of people who live paycheck to paycheck – literally bringing their account down to the last $10 each pay period – who accidently overdraw by a subtraction error or by one spouse for getting to enter a gas or ATM receipt. Did you ever transpose a number or not get a receipt at the pump? It happens. These people do not complain about the fee (even if an overdraft of $20 brings on a $39 fee which is crazy IMO)but they complain when the banks devise ways to turn that $39 fee into a several HUNDRED dollar fee by reordering withdrawals as a PP mentioned. B of A just lost a class-action lawsuit because of that practice. It is robbery to the working lower-class. Maybe your account can recover from a potential $300 O/D fee or you are fortunate enough to have extra money in savings or as a checking account buffer, but if you live paycheck to paycheck it can be a financially destructive and difficult to overcome those devised fees.
@ Monica…I have lived paycheck to paycheck…BUT it takes 4 paychecks to set aside a mere $25 each time to create a $100 float/pad in your account and thus a little protection from those transposed numbers, the spouse who forgets to tell you about a gas purchase, etc. Ah, alas, it takes discipline and the will and want to not spend that additional money while you build it and then maintain it.
The banks are making these changes because people are suing them based on their “Gotcha” accounting software. Otherwise it would be business as usual.
Ang – I agree that it should work that way. I also know that if you have the choice between paying your water bill or padding your checking, the water bill wins. Every time. And the point was that banks shouldn’t resort to ‘gotcha’ tactics to pad their bottom line. Charge the APPROPRIATE overdraft fee if it applies or don’t put the charge through if the money isn’t there. Or, like Chase, let the customer decide how the situation should be handled at the time the account is opened. But dont resort to reordering withdrawals and compound the problem ten-fold and then deem the person who was off by $10 in their account irresponsible.
Another problem: “Don’t rush to blame the banks all of the time. They are essentially paying your items and giving you a “loan” of sorts.”
Banks don’t call them loans, although any reasonable person knows perfectly well that they are loans. Loans are governed by a different set of rules, which the banks do not follow by calling the fee an “overdraft.” In some cases these loans are 1000%+ interest.
First of all, BoA is simply reacting to more regulations from the Feds being shoved at banks to “protect the consumer”. The new Reg E takes effect July 1 and no bank can charge an OD fee for a debit card purchase or ATM withdrawal unless you have opted-in with your bank for an overdraft protection service. Second, the consumers would not pay as many OD fees if they would all take some responsibility for their finances and quit relying on someone to hold their hand when they fail. Our governmet has taken “protect the consumer” and turned it into “let’s make our consumers even more lazy by telling them they don’t have to be responsible because it must be someone else’s fault.”
This is not just about people failing to balance their checkbooks. Bank of America has been charging overdraft fees for transactions before they even post to customers’ accounts. So, if an electronic debit shows up on the bank’s secret ledger (and not necessarily yours) as pending a day earlier than you expected, there’s a $40 charge, even though you didn’t know it was pending and had cash in the bank the next day to cover it. No, I am not kidding: BOA charges overdrafts even before items post to your account and BOA has to put up any money to cover it. Yes, the source of my information is BOA, as they explained why I could not have my fees reversed. I’ll bet these charges for phantom overdrafts are a great source of “revenue” for the fat greedy bankers that ruined our economy, and probably the source of some fancy bonuses. If you think that a family struggling to make ends meet “deserves” to be charged $300 for a mistake on their ledger that may have overcharged BOA $30 (maybe 10 separate cups of coffee charged to a debit card! the louts!), you get no respect from me. Get off your high horse and get a clue.
@Erin – I certainly do not think that anyone deserves to be charged exorbitant overdraft fees for a simple mistake. The changes that are being made only affect Debit card point-of-sale purchases and ATM withdrawals. You will still be charged for checks and electronic items presented. The new regs do not force any bank to change the amount of the OD fee either. The lazy consumers that I have a problem with are the ones that never balance their account, make purchases with their debit card not knowing if they have $5 or $500 in their account and then want to complain about a fee they were charged for a service (bounce protection) that they used. Oh, and I DO have a clue as I have been a bank officer for almost 15 years. My bank is a small community bank that posts items on their effective date, posts smallest dollar amount to highest, and would not hesitate to refund an OD fee for a simple mistake to help out a customer.
Hey, folks, use a local or regional bank or a credit union. If you call you get a real human being, in the same time zone as you no less. If you go to a branch you get someone with authority to actually take care of problems, not an automaton quoting from the company handbook. Disadvantage: when you’re out of town, you probably get hit with some ATM fees, to the tune of 10 or 20 bucks a year. Peanuts, compared to the cost of not being able to get problems solved quickly.
As one of those “habitual and sometimes accidental overdrafters” I for one am glad to hear of the end of overdraft fees. This is great news especially coming from the greeat Bank of America. Does this also mean that the additional $35.00 charge after 5 days of negativity will be abolished as well?