Bank of America to slash some checking account fees and eliminate others
Bank of America is slashing the amount it charges customers when they spend more than they have in their accounts and plans to eliminate fees for bounced checks.
It's the latest move by the nation's biggest banks to roll back the overdraft fees they long charged customers, fees that often amount to hundreds of dollars a year for frequent overdraft users.
Starting in May, the Charlotte, North Carolina-based bank will cut the overdraft fees it charges customers to $10 from $35. It will also stop charging fees for non-sufficient funds (NSF) — which are levied when it rejects a transaction — better known as bouncing a check. While checks are no longer widely used, NSF fees can come from automated payments like utility bills.
Bank of America says roughly 25% of its overdraft/NSF fee revenue each year came from NSF fees.
"This is the final step in the journey we've been on," said Holly O'Neill, president of retail banking at BofA, in an interview. "We have good financial solutions for clients without them having to rely on overdraft, but we will still have overdraft if it is needed."
Altogether, Bank of America estimates the steps will cut its overdraft-fee revenues by 97% from where they were in 2009, the year before it started taking incremental steps toward reining in overdraft-fee revenues.
Routine source of revenue
Originating in banks as a service fee to customers who may not have balanced their checkbook correctly but wanted a bank to honor a purchase, overdraft fees have been transformed by the widespread use of debit cards from a courtesy into a routine source of revenue for banks. If a customer lacks funds in their account, a $5 coffee could end up costing $40 because of overdraft fees.
The average fee for overdrawing an account was $33.58, a 22-cent increase over the past two years, according to a Bankrate survey released in October. Among major U.S. cities, people living in Baltimore, Houston and Philadelphia paid the highest overdraft fees last year at more than $35. Cincinnati, Los Angeles and St. Louis paid the lowest fees at around $31.
At $35, Bank of America's current overdraft fee ranks among the highest.
Sen. Elizabeth Warren, speaking at a Senate Banking Committee hearing in May, criticized bank executives for how much money their companies generated in fees during the coronavirus pandemic. The Massachusetts Democrat said customers at Bank of America, JPMorgan Chase, Citigroup and Wells Fargo paid a combined $4 billion in overdraft fees during the health crisis, with low-income and people of color paying most of the fines.
More banks eliminating fees
Starting in 2021, some larger banks started announcing they were dropping overdraft fees entirely.
Ally, an online bank and unit of publicly held Ally Financial, joined Discover in July as one of the few banks that no longer charge overdraft fees. In announcing the new policy, Ally said fees for insufficient funds disproportionately harm low-income households living paycheck to paycheck as well as Black and Hispanic families.
Capital One in December became the largest U.S. bank to say it will ditch all overdraft and insufficient fund fees for consumers, as regulators tighten their oversight of institutions that are heavily dependent on overdraft fees.