Bank of America is going ahead with a new overdraft policy, announced Wednesday, intended to protect customers by avoiding account overdrafts. This action comes in advance of the Federal Reserve’s July 1 deadline for banks to comply with new opt-in overdraft regulation. Overdraft fees are a more than $100 million dollar business for banks, so a large decline in profits is imminent. This begs the question, what are these institutions banking on to keep their revenues a float? For Bank of America, overdraft protection plans may be the new revenue earner. For consumers, they may not yet be as protected as hoped for.
As of February 22, 2010, new consumer protection regulations have swept through the credit industry and have re-defined policies from fair allocation of payments (balances with the highest interest rate can now be paid off first) to the elimination of fees to pay your bill. Transparency of repayment terms and various other protections have seemingly given consumers the upper hand, but banks may recoup their lost revenue from consumers with other hidden fees in the foreseeable future.
In days before the CARD Act took effect, BofA’s 2009 end-of-year earnings report reflected that consumer protections are not at all complementary to the bottom line. In a statement the bank stated, “Within Global Card Services, the provisions in the CARD Act are expected to negatively impact net interest income … and card income due to restrictions imposed on certain fees.”
Now, with new opt-in overdraft rules, this bait-and-switch tactic of commercial banks has again the opportunity to fester. After all, if banking isn’t a profitable business, overdraft fees are. According to the banking giant’s own figures, Bank of America revenue totaled $119.64 million dollars by end of year 2009, of which “service charges” accounted for $11.04 million. The Financial Times recently reported on Moebs Services’ survey estimating that U.S.-based banks make $38.5 billion in overdraft fee revenue, as these fees account for more than 75 percent of service charges to account holders.
Bank of America’s new overdraft policy seemingly eliminates all overdraft fees. However, the loophole lies in the bank’s overdraft protection services, which appear exempt from CARD Act legislation and do not seem to be going away anytime soon.. In accordance with Bank of America’s policy, if a customer does not have enough money in their checking account that is associated with their debit card at the time of purchase (also called the point-of-sale), the charge will be declined. And by the wizardry that is banking, no overdraft fee will be charged. However, if a customer has an overdraft protection plan linking a savings account to the checking account, funds will be transferred from the savings account to cover the charge – at a cost. The savings account will be charged $10 dollars for all overdraft transfers in one business day. Should the customer have a credit card associated to the checking account instead, this same $10 dollar fee is imposed plus interest. By now you should be thinking, “Wait, I am being fined on one account. To pay for a charge on another. With my own money?” The answer is, yes.
Once the Federal Reserve new opt-in overdraft rules are effective July 1, all banking institutions will be required to notify customers of their policy.In the meantime, if you are looking for clarification, don’t expect to find it on the BofA customer service site:
But wait, there’s more. Another “hidden” overdraft fee has made its way onto Bank of America customers’ bank statements. Mid-year 2009, Bank of America created an Extended Overdraft Item Fee. For accounts overdrawn for a period of five days or longer this $35 dollar fee is charged once. According to a Bank of America statement, “The [$35 dollar fee] is in addition to Overdraft Item Fees and NSF: Returned Item Fees.” A nameless call center customer-service representative confirmed that although these fees have been charged to customers since mid-2009, a letter of notification has yet to be sent to all. In effect, the new opt-in overdraft rules have been designed to protect consumers from such unexplained, impromptu fees and charges.
Overdraft Item Fees, Not-Sufficient-Funds: Returned Item Fees, Extended Overdraft Item Fees, Overdraft Protection Transfer Fees… and now you are thinking “Sooo, that’s why it’s called a $50 dollar latte…” The answer is, YUP!
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Take the time to protect yourself, as a consumer, with knowledge of credit cards, checking and savings accounts that are out there. See a comparison of credit cards and savings accounts at BillShrink to help keep those fees at bay and a few more dollars in your wallet.