Some banks have voluntarily cut back on overdraft fees in the hope of preventing more government regulation of their business practices. Bank of America (BAC) and JP Morgan Chase (JPM) are leading the effort to stall bills now pending in Congress to limit the use of overdraft fees.
Both banks announced that they will allow customers to opt out of overdraft protection services and avoid the possibility of paying overdraft fees. JP Morgan also will cancel fees charged on accounts overdrawn by $5 or less. Bank of America went a little further and will not charge fees on accounts withdrawn by $10 or less. How often have you made a $5 or $10 error in calculation when balancing your checkbook?
Both banks also agreed to cut down the number of times depositors could be charged a fee. JP Morgan will charge no more than three overdraft fees each day. Prior to this change, customers could be charged up to six fees in one day. That's more generous than Bank of America, which will limit the number of times customers can be charged overdraft fees to four times a day. Prior to this change, Bank of America used to charge fees as many as 10 times in one day.
Under the old rules a Bank of America customer who was overdrawn by $5 or more could face a total of $350 (10 x $35 in one day). You may think it takes a totally incompetent to end up with 10 overdrafts it a day. But it's not as difficult as it appears. Suppose you make an error of $100 in adding in a paycheck just before your mortgage is due. The bank pays the mortgage first and then processes other checks. You wrote out nine other small checks or incurred debit charges, totaling $110. You could then be overdrawn by $10 and if all checks clear on the same day as the mortgage, you could be stuck with $350 in overdraft charges.
Of course, one can avoid this by always keeping a sizable cushion in one's checking account and that's the best way to manage one's cash flow. But, can anyone really believe it costs the bank $350 to deal with the overdrafts?
I'm glad to see the banks taking action quickly rather than waiting around for Congress to pass a bill. Obviously they've learned from the new credit card law that responding to consumer complaints rather than ignoring them may keep the government off their backs.
I hope other banks follow suit and allow customers to opt out of overdraft options and just allow the bank to reject a charge. Now that people are using debit cards more than credit cards, mistakes will happen more frequently. I'm sure many people working with debit cards would rather face a rejection of a charge than pay an extra $35 just to buy a $10 or $20 item.
Lita Epstein has written more than 25 books, including The Complete Idiot's Guide to Improving Your Credit Score.
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