Some of the nation’s largest banks are planning to curtail overdraft fees amid a public uproar over the practice.
But those voluntary actions won’t stop legislators or federal regulators from cracking down on overdraft and bounced-check fees, which reportedly earned banks and credit unions $38.5 billion last year.
Currently, many major banks will honor checks or debit card purchases that exceed an account’s balance, but assess a fee of up to $35 for each transaction. This means that if your account is short, your $3 cup of coffee could cost you $38.
Wells Fargo and JPMorgan Chase announced last week they would stop charging consumers who overdraw their accounts by $5 or less, and Bank of America and U.S. Bancorp said it would do the same for overdrafts of $10 or less. Bank of America and Wells Fargo said they would charge no more than four overdraft fees a day, and JPMorgan Chase and U.S. Bancorp set the limit at three.
Bank of America says those changes will begin Oct. 19. JPMorgan Chase starts applying its new rules in early 2010, while Wells Fargo didn’t set an effective date.
Banks are also making changes that will make overdrafts less common.
Starting next June, Bank of America will set an annual limit on the number of times customers can overdraw their accounts. It will also allow customers opening new accounts to choose whether or not they want overdraft protection. U.S. Bancorp says it plans to allow consumers to opt out of a program that allows debit card overdrafts at a charge of up to $35 per purchase.
JPMorgan Chase also said it plans to start crediting debit card transactions in the order in which they occur, rather than by largest expense first, a practice that ultimately costs consumers more in overdraft fees.
Tracey Mills, a spokeswoman for the Consumer Bankers Association, says banks decided to make these changes in response to complaints from consumers, who are struggling with difficult economic conditions.
“Banks are responding to what their customers wanted,” she says. “When banks lose customers, they start to pay attention to what’s causing that. It’s four times more expensive for a bank to attract a new customer than to keep a current customer. It’s very bottom-line.”
Scott Talbott, a spokesman for the Financial Services Roundtable, an industry group, says he expects other banks to follow suit and reassess their overdraft fee policies. He also says that any new regulations restricting banks’ ability to charge these fees would be unnecessary in light of their voluntary actions.
But Sheila Bair, the head of the Federal Deposit Insurance Corp., disagrees. In an interview with USA Today on Friday, she called the banks’ actions “significant improvements,” but raised concerns about whether they go far enough.
“We do need some regulatory standards in this area,” she was quoted as saying.
The Federal Reserve has said it plans to release a rule by the end of the year on overdrafts.
Rep. Carolyn Maloney, D-N.Y., has sponsored legislation to crack down on bank overdraft policies. Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, also says he plans to introduce such legislation.
Steven Adamske, a spokesman for the House Financial Services Committee, says banks’ overdraft policies are “one of the reasons we’re so gung ho to create President Obama’s consumer protection agency. It’s to look at these kinds of issues so we don’t have to have an act of Congress every time the industry comes up with a new or abusive product.”
Carole Fleck is a senior editor at the AARP Bulletin.