BofA said that it would stop imposing hefty overdraft fees for debit-card… (Davis Turner / Getty Images )
Lawmakers and consumer advocates have heaped accolades on Bank of America for its announcement that it will stop hitting customers with $35 overdraft fees any time they don't have enough cash to cover a debit-card purchase.
Rep. Carolyn Maloney (D-N.Y.), who has spearheaded efforts in Congress to crack down on abusive bank practices, was typical of those showering BofA with love. She declared, “Let me now praise Bank of America!”
It's understandable that folks who regularly criticize banks would want to hand out milk and cookies when they see something beneficial for consumers.
But it seems pretty pathetic to sing a company's praises just because it's decided to stop mistreating customers.
I mean, is that how miserable things have gotten, that we honor businesses just for doing the right thing? That we reward them for saying they'll quit doing something they never should have done in the first place?
In this case, BofA said the other day that it would stop imposing hefty overdraft fees for purchases as picayune as a cup of coffee or a candy bar. Instead, it will reject any debit-card transaction that can't be covered by a customer's checking account.
This is, of course, the only sensible way to handle such situations -- unless a customer has asked in advance for overdraft protection, in which case a service fee is clearly justifiable.
In fact, consumer advocates have been saying for years that banks should stop reaching into people's pockets with these "gotcha" fees and should instead keep customers from getting into trouble in the first place.
I wrote in September that banks "should use all the technological means at their disposal to prevent customers from overdrawing their accounts."
BofA says it lacks the technical wherewithal to alert customers at the cash register that they're about to deplete their checking account, so it will instead block the transaction from going through.
The change takes effect June 19 for new customers and in August for existing debit-card holders.
Susan Faulkner, the senior vice president who heads BofA's debit-card business, told me the change is in response to customer requests.
"Customers have been telling us that they don't want to spend money that they don't have," she said. "We want to help them avoid overdraft fees."
Yep -- that's BofA's story and it's sticking to it.
"All of this is in response to our customers," Faulkner said. "We heard it loud and clear. It's about building a foundation of trust with our customers."
Moreover: "We're doing this proactively."
Um, yeah. Except that right around the same time BofA's customer-driven policy change takes effect, so will new federal rules requiring banks to ask customers in advance if they want overdraft protection.
Show of hands: How many of you would give the go-ahead for your bank to charge a $35 fee for overdrawing your account, rather than simply not letting the transaction go through if you don't have enough cash on hand?
I asked Faulkner whether BofA, aside from responding to customers' needs, isn't also responding to the looming arrival of new overdraft regulations.
"We've gone way beyond what's required," she replied.
Actually, no. BofA is merely taking the new federal rules to their logical outcome: If hardly anyone gives permission for overdraft fees to be charged, which is likely, the bank will have no choice but to deny most people's transactions.
The same goes for every other bank. People will sign up for overdraft protection -- and some banks are already pushing hard to get customers on board -- or their debit-card purchases won't go through without sufficient funds.
BofA has about 37 million debit-card customers, making it the market leader. Debit cards account for 60% of all overdrafts for the bank, BofA estimates.
Industrywide, banks have generated about $38 billion annually from service charges on deposits.
The Federal Deposit Insurance Corp. pointed out in a 2008 report that if you became overdrawn by $20, and if you got slapped with a $27 overdraft fee, repaying your account within a couple of weeks would be the equivalent of having received a loan with an annual percentage rate of 3,520%.
With margins like that, this isn't a business that banks will cheerfully walk away from. So the real issue here isn't how great BofA and other banks are for finally doing away with onerous overdraft fees. The real issue is what they'll do to make up for the loss of these lucrative charges.
Stay tuned. This is where we'll really see whose needs come first.
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