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?