Bank of America gets rid of overdraft fees
In early March Bank of America announced its decision to abolish overdraft fees on debit accounts, a major revenue source for nearly all banks. An overdraft fee is a fee charged by the bank when a customer attempts to make a purchase without enough money in his or her account, which can be as high as $35. Essentially a short term loan by the bank to the overdrawing customer, an overdraft fee can generate millions of dollars in revenue for banks.
The move by Bank of America challenges other banks to follow suit, potentially causing banks to lose revenue. Bank of America decided to end overdraft fees in favor of their customers, since public opinion towards financial institutions is reported to be low. One of the main motivators for this change was to bolster customer trust in the bank.
A new federal rule from the Federal Reserve, effective July 1, will require banks to obtain customer permission before overdraft fees may be charged. Most banks automatically enroll their customers in the overdraft fee "program," but under the new rule, customers will not automatically be enrolled but will instead be given the option to pay an additional fee for overdraft protection.
Reports exist of paying essentially $40 for a cup of coffee because of overdraft fees, but these fees are not as common as thought. Ninety-three percent of all overdraft fees charged to customers are incurred by only 14% of customers, many of whom overdraw on their accounts five or more times per year. Nearly 75% of customers, according to a Federal Deposit Insurance Corporation survey, do not incur overdraft fees.