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B of A kills overdraft fees
Bank of America's decision to get rid of overdraft fees on debit purchases sounds like a win for customers based on a rare commodity in the financial sector -- common sense. But is it really?
The bank says starting June 19, customers who try to use their debit cards without enough money in their checking account will simply be declined. More from the New York Times:
"What our customers kept telling me is 'just don't let me spend money that I don't have,' " said Susan Faulkner, the bank's deposit and card product executive, who said the overdraft changes were part of a broader push to build trust among its customers. "We wanted to help them avoid those unexpected overdraft fees."
Keep in mind that two weeks after this policy takes effect, banks will be required to get a customer's permission before enrolling them in a overdraft program. B of A will still offer overdraft protection on checks and automatic payments, with the customer's permission. The bank's decision to eliminate overdraft completely on debit purchases is a bit of a surprise. Consumer groups like the move.
But let's be real. Overdraft fees are a multi-billion dollar business. That revenue has to be collected somewhere else, either through budget cuts or more likely, other fees. This could mean the end of free checking or rewards programs. Consider this:
In the past, a relatively small number of customers generated such enormous fees from overdraft charges and penalties on credit cards that they subsidized free checking and generous rewards programs for the majority of customers.
In the case of overdraft, 93 percent of the fees are generated by just 14 percent of the customers who exceed their balances five times or more a year, according to a 2008 study by the Federal Deposit Insurance Corporation. Three-quarters of customers are not charged overdraft fees at all, the study found.
So the question is: As a customer, do you favor the elimination of overdraft fees, even if it means free checking or other perks go away?
Or is it unfair that a majority of customers will have to make up for the fees that were generated by a minority of customers?
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Why does everything have to be taken to an extreme when all we wanted was fairness and reasonableness. The problem was not people who deserved an overdraft fee getting charged. It was people who didn't deserve the fee.
Like banks holding up deposits until all the debits were processed. Like when people make a deposit after closing time at the ATM, have a receipt in hand for the deposit and made a debit 2 days after the receipt date and incurred an overdraft fee. You don't get credit for the ATM deposit for overdraft purposes until the company that services the ATM takes it out of the machine and turns it over to the bank. You get your deposit quicker if you wait until the next day when the bank is open. Or the bank software which calculated the order of transactions in order to maximize fees.
That was all that we the people wanted fixed. Instead the bureaucrats used a nuclear option instead of a surgical strike and started a major war where now we all suffer. Are we the people being taught a lesson, to never ask for fairness and ethics or it will be hell to pay. Better to just to accept corruption and thievery as it is now than to right one wrong and cause total oppression.
"Totally" free checking is already pretty much history, but "mostly" free checking has taken its place. The new standard is another example of how the people who can most afford the service pay almost nothing for it.
For example at my bank a low minimum balance gets you everything except free checks, and who writes checks any more except people who can't get a credit card or handle the responsibility of a debit card?
Unfortunately the people who pay overdraft fees will probably never be able to manage a minimum balance, and will one way or another continue to subsidize my "free" checking.
As someone who works for one of the big banks..not BoA..I know that this is going to be a problem for them as I heard earlier that when making an ATM withdrawal that may cause them to overdraft, customers will be prompted to either cancel or continue with the transaction and accept a $35 OD fee.
1)Clients will accept it then call and ask to speak to a supervisor's supervisor to have it waive,which if BoA was smart they wouldn't waive.
2)The same people rejoicing about no fees will be pissed when their cards are being declined and they're publicly embarrassed and will still call ready to bite someone's head off.
It's a lose-lose situation and to be honest as the writer stated, the people who OD often are the bums of banks and are of no value as customers.
Ash, based on your experience, how much does it cost a bank on the overdraft? I am guessing substantially less than a $35 fee. Let's say it's $5 (pure assumption on my part). Then make the fee $7 - cover the costs plus $2 profit. I think the negative response that you're anticipating will be much diminished if there appears to be some rationale underlying the fee.
Really? So To deal with your ridiculously high fee, instead of lowering the fee to $5 or even $10 you just eliminate the service altogether - how thoughtful of you BigBankX. But it's ok - I've only ever needed 0-2 times ever. What's that you say? You're going to make me pay a small monthly fee of (for my purpose, not real)$3 for my checking - $36/year...so now I will pay more per year just to have checking, then if I accidently overspend once a year...
Obviously I don't know if/what they will charge, but I've already received a notice for another bigbank credit card stating I will now have a $60 annual fee just for being such a loyal customer - i can only imagine the creative and amazing things they will do in the future to get around the new regulations. Meanwhile, the community banks and credit unions, who already avoided these abusive and deceptive practices will continue to struggle.
Either way do yourselves a favor and move your money to a local financial institution.
Kudos for this common sense move, but the reality is that B of A made this decision only AFTER they were backed into a corner. I am an avid fan of free markets but only when there is sufficient competition to make it so.
With so many industries consolidating and creating TBTF (Too Big To Fail) companies that not only create more systemic risk but drive prices up I think its time we accept the necessary role of government in business. Either government needs to promote competition by preventing consolidation under the false promise of "lower prices for consumers" or protect consumers from larger TBTF companies that assert themselves at the expense of market stability, jobs and prices with little resistance.
It's always bothered me that the bank has so many conflicts of interest in this arena:
- The bank shouldn't want customers to use overdraft,
- yet, they charge such high fees that they want me to overdraft my account, and
- to make the fees as high as possible they have historically applied the highest debit first, resulting in more fees.
I'm glad that BoA will now be denying debit purchases if the cash isn't there.
Why is it that once a profit is generated (no matter how temporary or "one time" it might be), it must be maintained?
This smacks to me of the same kind of hubris that so many claim exist for entitlement programs the government administers.
Are businesses entitled to continue to take money from me just because they got away with an unethical naked grab previously?
Of is this OK because, in the stacked deck "free market," it's "dog eat dog" and "screw you if you're not lucky enough to be me"? I'm sick of this "profits must be recovered" mentality.
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