NEW YORK—Bank of America Corp., the nation’s biggest bank by assets, announced on Wednesday that it would get rid of overdraft fees on debit-card purchases.
The bank said that it would start preventing customers from using their cards to make purchases if they do not have enough money in their linked accounts to cover the purchase.
In the current agreement, customers who don’t have enough funds would still be able to make purchases, but would be charged a $35 overdraft fee for each transaction. Going forward, the transaction would be rejected.
Customers who opt for the overdraft service must sign an agreement and agree to the fees, or link their accounts to a Bank of America credit card. The new rules will begin to take effect in mid-2010.
Bank of America is the second-largest U.S. bank to act before new federal legislation comes into effect that prevents financial institutions from charging excessive fees, traditionally a large source of income—more than $1.7 billion in 2009, according to AP research—for the banking industry. The new Federal Reserve rule will go into effect on July 1.
“Our customers have been clear that they want to know if a purchase is going to overdraw their account,” said Susan Faulkner, Deposits and Card Product executive at Bank of America, in a company statement. “Our solution is simple … and helps customers control their finances by reducing the possibility of overextending themselves at the point of sale with a debit card.”
Citigroup, Inc. has enacted the same policy, and this would likely force other banks to consider a similar strategy, reports indicate.
Overdraft fees—essentially a one-time interest on a short-term overdraft loan—have been lucrative for the industry. Each year, banks earn tens of billions in overdraft fee revenues, but the practice has recently been criticized by lawmakers and pundits since the beginning of the 2008 financial crisis.
Some analysts say that the move may steer banks away from offering completely free checking accounts. Traditionally, such fees were levied by banks to help offset the cost of monitoring and operating checking accounts and banks were able to use the revenues to cover the cost of free checking accounts.
The bank said that it would start preventing customers from using their cards to make purchases if they do not have enough money in their linked accounts to cover the purchase.
In the current agreement, customers who don’t have enough funds would still be able to make purchases, but would be charged a $35 overdraft fee for each transaction. Going forward, the transaction would be rejected.
Customers who opt for the overdraft service must sign an agreement and agree to the fees, or link their accounts to a Bank of America credit card. The new rules will begin to take effect in mid-2010.
Bank of America is the second-largest U.S. bank to act before new federal legislation comes into effect that prevents financial institutions from charging excessive fees, traditionally a large source of income—more than $1.7 billion in 2009, according to AP research—for the banking industry. The new Federal Reserve rule will go into effect on July 1.
“Our customers have been clear that they want to know if a purchase is going to overdraw their account,” said Susan Faulkner, Deposits and Card Product executive at Bank of America, in a company statement. “Our solution is simple … and helps customers control their finances by reducing the possibility of overextending themselves at the point of sale with a debit card.”
Citigroup, Inc. has enacted the same policy, and this would likely force other banks to consider a similar strategy, reports indicate.
Overdraft fees—essentially a one-time interest on a short-term overdraft loan—have been lucrative for the industry. Each year, banks earn tens of billions in overdraft fee revenues, but the practice has recently been criticized by lawmakers and pundits since the beginning of the 2008 financial crisis.
Some analysts say that the move may steer banks away from offering completely free checking accounts. Traditionally, such fees were levied by banks to help offset the cost of monitoring and operating checking accounts and banks were able to use the revenues to cover the cost of free checking accounts.
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