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Bank Of America Slashes Fees For Account Overdrafts

NEW YORK (AP) — Bank of America slashed the quantity it costs clients after they spend greater than they’ve of their accounts and plans to remove completely its charges for bounced checks.

It’s the newest transfer by the nation’s largest banks to roll again the overdraft charges they lengthy charged clients, charges that usually quantity to a whole lot of {dollars} a yr for frequent overdraft customers.

The financial institution primarily based in Charlotte, North Carolina, will reduce the overdraft charges it costs clients to $10 from $35 beginning in May. It may even cease charging charges for non-sufficient funds — that are levied when it rejects a transaction — higher often called bouncing a verify.

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While checks are now not broadly used, NSF charges can come from automated funds like utility payments. Bank of America, the nation’s second-largest financial institution, says roughly 25% of its overdraft/NSF price income annually got here from NSF charges. Overdraft charges sometimes come when somebody makes a purchase order on a debit card that exceeds the accessible money of their account.

Altogether, Bank of America estimates the steps will reduce its overdraft-fee revenues by 97% from the place they have been in 2009, the yr earlier than it began taking incremental steps towards reining in overdraft-fee revenues.

“This is the final step in the journey we’ve been on,” mentioned 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.”

Consumer teams and politicians applauded the measure, notably with Bank of America’s measurement as the most important shopper banking franchise within the nation.

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“I’ve been working to reduce or eliminate overdraft fees for 20 years and to give them credit, they really did listen,” mentioned Martin Eakes, CEO of the Center for Responsible Lending. “This could potentially hundreds of millions of dollars staying in customers’ accounts instead of going toward fees.”

It stays to be seen whether or not the choice by BofA — a pacesetter within the retail banking trade — to chop overdraft charges will strain different banks to take comparable measures.

“Banks are going to take different approaches. Some are going to eliminate them, reduce them, others will remain in denial about how damaging these fees are. But now they have competitive pressure” mentioned Lauren Saunders, affiliate director for the National Consumer Law Center. “Any bank that is not seriously considering reforming their overdraft practices is just hurting themselves in the long term.”

The financial institution can also be eliminating two smaller charges as nicely. It will now not permit clients to overdraft their accounts on the ATM and can remove a $12 price it charged clients when the financial institution routinely moved cash from one account to a different to keep away from an overdraft, usually shifting cash from a long-term financial savings account into the purchasers’ major checking.

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Overdraft has its origins in banks offering a service for a price to clients who might haven’t balanced their checkbook accurately and wished a financial institution to honor a purchase order. But the widespread use of debit playing cards modified this courtesy right into a routine income for banks. If a buyer lacked funds of their account, a $5 espresso might find yourself costing $35 due to overdraft charges.

Overdraft charges grew to become profitable for the trade however on the similar time made banks a goal for shopper advocates and regulators. After the monetary disaster, Democrats put the Consumer Financial Protection Bureau and different regulators in command of reining in overdraft price income. The CFPB underneath President Biden has determined to take one other take a look at overdraft price practices.

“For many big banks, overdraft fees are still the steady, reliable, predictable, easy revenue that shareholders love,” mentioned Rohit Chopra, the CFPB’s director, in December.

Sen. Elizabeth Warren, D-Massachusetts and a long-time critic of banking practices like overdraft charges, referred to as BofA’s announcement “a step in the right direction” on Twitter.

“Big banks should eliminate these fees altogether,” Warren mentioned.

Sen. Sherrod Brown, D-Ohio and the chairman of the Senate Banking Committee, referred to as BofA’s resolution a “good first step toward banks eliminating overdraft fees altogether.”

For years, BofA has slowly in the reduction of on its overdraft price practices. It removed overdraft charges tied to debit card purchases in 2010 and created a checking account in 2014 that didn’t permit clients to overdraft. The SafeBalance account is now the financial institution’s mostly opened account.

But BofA and the broader trade weren’t able to eliminate overdraft charges altogether till not too long ago. Many banks froze the charges they charged clients in the course of the first yr of the pandemic and trade nonetheless booked file income. While overdraft charges fell for the primary time in six years in 2020, the trade nonetheless collected over $30 billion in charges from such practices that yr.

So beginning in 2021, some bigger banks began saying they have been dropping overdraft charges completely. Ally Bank, PNC, Santander and Capital One have been among the many larger regional banks to successfully remove overdraft charges. JPMorgan Chase additionally eased its overdraft training, giving clients extra leeway to go unfavorable of their accounts earlier than charges can be charged.

Bank of America will report its fourth-quarter outcomes on Jan. 19, which can give traders and the general public a full-year view on how a lot the financial institution continues to be bringing in from charges like overdraft.

Ken Sweet covers banking and shopper monetary points for The Associated Press. Follow him on Twitter at @kensweet.

This story has been corrected to point out that Lauren Saunders is the affiliate, not govt, director for the National Consumer Law Center.

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