It sounds incredible, especially to those of us who have been covering the banking industry, but Bank of America is ending the practice of issuing overdraft fees.
The bank made the announcement late Tuesday, and it's expected that many banks will probably follow suit. The practice will end sometime in mid-June, according to The New York Times. So at some point this summer, if you try to pump gas, and your checking account is on empty, your gas tank will stay empty, too. Yes, your card will be declined.
For some people, this may come as a shock, but surely, for many others, this is going to come as a huge relief. It may be annoying to have your card declined, and it may cause a hassle, but it's also a hassle to realize your bank account is now $172 in the red because you made a couple of unwise purchases, not realizing your checking account was so low that your $3 taco has just cost you $39, or your $14 fill up at the gas station has meant shelling out an extra $37.50.
Overdrafts are only ending for debit card purchases. The fees will continue, for instance, if you have an automatic withdrawal for your mortgage or car insurance, and not enough money to cover them. Those will still go through, and you'll still get hit with an overdraft fee.
There's no doubt that Americans who find themselves hammered with overdraft fees should be watching their checking accounts more closely, but in the last decade or two, banks have increasingly capitalized on these collective screw-ups, raising overdraft fees annually and structuring the process (by running the largest checks through first, for instance) to get more bang for their buck when customers do mess up.
Last year alone, banks reportedly earned approximately $38.5 billion from overdraft and insufficient-funds fees.
Think about what $38.5 billion could do for the economy this year, if all that money didn't go to the banks, but stayed in Americans' pockets. Sure, there may be a lot more embarrassment at the cash register, but arguably, people are going to be a lot more financially stable.
Of course, for now Bank of America is the lone bank promising to end overdrafts, but there's plenty of speculation that more banks will soon follow suit.
I now wonder about my own bank. The other day, I mentioned to my bank manager that I hadn't had an overdraft fee in about seven or eight months, sadly, I admit, something of a streak for me. She made a cryptic comment that there were changes in store at our bank this summer, and, no I'm not a Bank of America customer. Now, this is just one bank manager in Cincinnati, Ohio, and it seems doubtful she would really know what's going on in the halls of the bank headquarters several states away. And when I pressed her, she said that she didn't know what these changes were. Still, it makes me wonder if there has been rumblings at other banks that overdraft fees are on the endangered species list.
With the banks standing to lose billions of dollars in fees, could this mean the end of free checking? Will there be other, ominous fees that may take the place of overdraft fees? Stay tuned ...
Geoff Williams is a frequent contributor to WalletPop. He is also the co-author of the new book Living Well with Bad Credit.
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