Bank of America Cuts Overdraft Fee By $25, Eliminates One for Bouncing a Check
The Bank of America will lower the amount it charges customers for account overdrafts by $25 starting in May, substantially slashing a fee that can cost some hundreds of dollars every year.
The bank, based in Charlotte, North Carolina, also plans to eliminate the fees for non-sufficient funds (NSF) charged to customers when it rejects a transaction, also known as bouncing a check.
"This is the final step in the journey we've been on," Holly O'Neill, president of retail banking for the bank, said 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."
Bank of America, the second-largest bank in the nation, currently charges $35 in overdraft fees but plans to lower the total to $10. Meanwhile, even though checks have grown far less common, the bank can still charge NSF fees because of automated payments like utility bills or subscription fees.
About 25 percent of Bank of America's overdraft and NSF fee revenue each year came from NSF fees, the bank said. With its planned steps, Bank of America estimates it will whittle its overdraft-fee revenues by 97 percent from 2009, when the bank started making strides to curb such revenues.
For years, it was common that one large bank would increase the fee it was charging for overdraft, which would cause other banks to respond in kind. It remains to be seen whether the decision by BofA—a leader in the retail banking industry—to cut overdraft fees will pressure other banks to take similar measures.
The bank is also eliminating two smaller fees as well. It will no longer allow customers to overdraft their accounts at the ATM and will eliminate a $12 fee it charged customers when the bank automatically moved money from one account to another to avoid an overdraft, often moving money from a long-term savings account into the customers' primary checking.
Overdraft has its origins in banks providing a service for a fee to customers who may have not balanced their checkbook correctly and wanted a bank to honor a purchase. But the widespread use of debit cards changed this courtesy into a routine source of revenue for banks. If a customer lacked funds in their account, a $5 coffee could end up costing $35 because of overdraft fees.
Overdraft fees became lucrative for the industry but at the same time made banks a target for consumer advocates and regulators. After the financial crisis, Democrats put the Consumer Financial Protection Bureau and other regulators in charge of reining in overdraft fee revenue.
For years, BofA has slowly cut back on its overdraft fee practices. It got rid of overdraft fees tied to debit card purchases in 2010 and created a checking account in 2014 that did not allow customers to overdraft. The SafeBalance account is now the bank's most commonly opened account.
But BofA and the broader industry were not ready to get rid of overdraft fees altogether until recently. Many banks froze the fees they charged customers during the first year of the pandemic and industry still booked record profits.
So starting in 2021, some larger banks started announcing they were dropping overdraft fees entirely. Ally Bank, PNC, Santander and Capital One were among the bigger regional banks to effectively eliminate overdraft fees.
The Associated Press contributed to this report.
