Bank Of America Drops Some Overdraft Charges

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Bank of America says it will do away with overdraft charges on debit card purchases. When customers try to buy something, but don't have enough in their account, the transaction will simply be rejected. Consumer groups are cheering this move but warn that it's one more reason for cardholders to keep a close eye on their statements.

NPR's Tamara Keith reports.

TAMARA KEITH: Overdraft fees from debit cards have become a huge source of income for banks to the tune of about $20 billion a year. Here's how it works. Say your checking account is running on empty, but you don't realize it, you go to your favorite coffee place for a latte, swipe your debit card, the payment goes through just fine, and then, bam, a $35 fee. Bank of America is saying no more.

Ms. SUSAN FAULKNER (Senior Vice President, Bank of America): You will never at Starbucks have a $40 cup of latte.

KEITH: Susan Faulkner is a senior vice president at Bank of America. As of early June for new customers and early August for existing customers, Bank of America will stop charging overdraft fees on debit transactions. So if there isn't enough money in the account...

Ms. FAULKNER: We would just not authorize that transaction to go through.

KEITH: You'd be denied.

Ms. FAULKNER: You're denied, therefore, you don't incur that additional fee.

KEITH: Bank of America is the second major bank to move in this direction. Citibank was the first. Both are going beyond what's required by the Federal Reserve's new rules. Those rules, set to take effect this summer, require banks to get their customers to opt in if they want automatic overdraft protection on their debit cards. These banks are apparently betting that most of their customers faced with the decision will opt out. Faulkner says Bank of America is simply doing what its customers want.

Ms. FAULKNER: They just said: If I'm going to overdraw my account, don't let me. Just don't let me spend the money that I don't have.

KEITH: One question is just how much this move will cost Bank of America. The company isn't yet saying, but it could be hundreds of millions of dollars. Richard Bove says losing overdraft fee income is certainly going to cut into profitability. He's a banking industry analyst at Rochdale Securities.

Mr. RICHARD BOVE (Banking Industry Analyst, Rochdale Securities): It's reasonable to assume that the banks will be closing branches, reducing the hours that they're open, eliminating free checking or putting such high-balance requirements on it to get the free checking that the whole cost of consumer banking in the United States is going to go up.

KEITH: Bove expects the industry to refocus its efforts on its most profitable customers and even push out those who aren't.

Mr. BOVE: We're going to see a change in the nature of banking in the United States for the consumer, and the consumer is definitely not going to like it.

Ms. KRISTINA EDMUNSON (Consumers Union): We're already starting to see additional, new little tricks and traps and fees jump up and pop out at consumers.

KEITH: Kristina Edmunson with Consumers Union says consumers will need to be more vigilant than ever, checking their statements for new, unexpected fees.

Ms. EDMUNSON: Banks are starting to charge fees for simply closing an account or inactivity on an account. Some banks may also start charging an administrative fee for just mailing a paper statement to your house each month.

KEITH: Bank of America, for its part, insists there are no new or hidden fees associated with its announced overdraft changes. One more thing? Debit card fees may be on the way out, but bounce a check, and it will still cost you.

Tamara Keith, NPR News, Washington.

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