Bank of America (BAC) announcement that it will end overdraft fees on debit cards is good news for customers, but there's also a downside. BofA cardholders will no longer be allowed to spend more on their debit cards than they actually have on deposit in their accounts.In a public statement, the bank said most customers incur overdraft fees unwittingly. "The majority of our customers who overdraw their account do so with everyday debit purchases," said Susan Faulkner, senior vice president of consumer banking for Charlotte, N.C.-based BofA. "They're doing this unknowingly, because they aren't aware that they are about to overdraft."
The bank's decision is clever. New Federal Reserve rules will prevent banks from charging overdraft fees after July 1. BofA seems to be reasoning that if it can't charge the fee, it will simply eliminate the behavior can incur it. The move isn't without negative repercussions for BofA. The New York Times reports that the "decision that could cost the bank tens of millions a year in revenue." The paper added that "debit purchases account for roughly 60 percent of overdrafts at Bank of America."
Toeing the Line Now
So why would the bank walk away from so much money? The new Fed rule will require banks to get customer consent to charge overdraft fees, a task that's nearly impossible for a financial firm with millions of retail customers. But the other, more important reason is that Congress has portrayed banks as predators that will charge fees for everything from checking account minimum balances to late payments to overdraft charges.
Banks are already facing a new set of consumer protection rules and probably don't want the government to focus on further restrictions on their practices with retail customers. Instead, the banks are better off to toe the line now to show that they're law abiding to a fault.
A revenge factor is a possibility. BofA is telling Congress and its own customers that if it can't collect fees for overdrafts on debit cards, then it will deny extending those customers even a dime of additional purchasing power. Other big banks also face the July 1 deadline and are likely to adopt the same rules. Why help customers if there's no money in it?
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