Bank of America slashes customer overdraft fees as part of big changes to charges
Bank of America is cutting its overdraft fees for customers by more than half, the bank announced Tuesday morning, and making other changes that will shrink the bank’s overdraft revenue to a fraction of earlier levels.
The Charlotte-based bank is reducing overdraft fees from $35 to $10 beginning in May. It’s also eliminating insufficient fund fee starting next month, as well as transfer fees associated with its Balance Connect overdraft protection service in May.
The changes, combined with other products and services designed to help customers avoid overdrafts, will bring Bank of America’s overdraft fee revenue down by 97% since 2009, the bank said in a news release.
“We’ve been on a journey over the past 10 to 12 years to really shift how we look at overdraft services,” President of retail banking Holly O’Neill told the Observer. “Now we’re in a position where we decided to take what I would say is the last big step.”
Bank of America is based in Charlotte and controls the largest share of the area’s deposits: according to federal data, it accounted for 62% of the local deposit market in 2021. That’s well ahead of competitors Truist, at 16%, and Wells Fargo, at 14%.
Overdraft criticisms
Overdraft fees have drawn scrutiny from lawmakers and advocacy groups in recent years for their impact on low-income Americans, especially during the financial hardships caused by the coronavirus pandemic.
Critics argue that the fees make money for banks at the expense of customers that can afford it the least.
“It never cost the bank $35 to bounce a transaction. It was punitive,” said Teresa Murray, director of the consumer watchdog office at the U.S. Public Interest Research Group.
She called the changes at Bank of America “a step in the right direction,” though not entirely surprising given recent pressures from regulators.
One of the most well-publicized moments of the debate came last summer, when Sen. Elizabeth Warren, D-Mass., confronted JP Morgan Chase CEO Jaime Dimon on the subject. Warren called the bank the “star of the overdraft show” for collecting more than $1.4 billion in the charges in 2020.
In recent years, the country’s largest banks have offered products or services designed to help customers avoid the fees. For example, in December, JP Morgan expanded its overdraft cushion to $50, meaning customers that overdraft by that amount or less won’t pay overdraft charges.
And Bank of America offers options like SafeBalance Banking, an overdraft-free checking account, and Balance Connect, which allows customers to link multiple accounts to avoid a negative balance.
“We have solutions out there that clients can use to support themselves,” O’Neill said. “This (latest change) was the final leg in the journey.”
Other banks have gone so far as to get rid of the fees altogether: Ally Bank eliminated overdraft fees on all accounts last June. And last month, Capital One became the largest American bank to end the charges.
A changing industry
Murray said that the Bank of America’s changes likely signal an industry-wide shift.
“I think this is the next wave,” she said. “You will see other banks that will follow suit and either eliminate these fees or drastically reduce them.”
The bank, too, is hoping to be a trendsetter.
“We obviously do think this is the right direction and the best way we can support our clients,” O’Neill said. “I do hope that the industry follow suit.”
Wells Fargo changes overdraft policies too
Late Tuesday afternoon, Wells Fargo announced it too would be making its own changes to overdraft policies.
The bank will eliminate insufficient fund fees and transfer fees associated with its overdraft protection service, which uses funds from a linked account to cover overdrafts, by the end of the first quarter.
Wells Fargo is also starting a 24-hour grace period for customers to rectify overdrafts before being charged, according to a company news release. That change is expected to take place in the third quarter of this year.
“Today’s changes are meant to improve our customers’ experience with Wells Fargo and make it easier for them to manage their bank accounts,” said Mary Mack, CEO of Wells Fargo consumer and small business banking, in the release.
This story was originally published January 11, 2022 at 8:49 AM.
