Bank of America Drops Checking Overdraft Fees, Will Other Banks Follow?

Bank of America announced late yesterday that it plans to get rid of overdraft fees on its debit card accounts starting June 19th. This change comes in anticipation of federal rules that could potentially limit overdraft fees for debit cards, as the Credit CARD Act has for credit cards.

No Fees, Unless You Want Them

While getting rid of overdraft fees can potentially cost Bank of America millions of dollars in lost revenue, it also places a challenge in front of other large banks to get rid of the unpopular service. While consumers will still be able to opt-in for overdraft protection, allowing them to overdraw their balance for a fee, it will no longer be automatically attached to debit accounts at Bank of America.

Bank of America Branch

Instead, people who attempt to spend more money than they have in their accounts will simply be denied the transaction. However, at ATM’s people will be offered the option to continue with the transaction, after being told that a fee will be assessed.

Citibank, ING Direct, B of A…Who’s Next?

The announcement follows innovative banks like ING Direct, who offer a unique line of credit overdraft solution, and Citibank, which has offered its customers the option to forgo overdraft fees for some time now. Now that Bank of America has joined the ranks, the real question is will more banks follow suit?

The Cost of Opting Out

Banks made an estimated $35 billion in overdraft fees last year, with Bank of America charging up to $35 per overdraft, regardless of the amount that was overdrawn. This led to the infamous “$40 cup of coffee” that had consumers up in arms a few months ago, as well as the fact that many customers were not informed that they were enrolled in the service until they received the bill.

However, many banks maintain that overdraft protection is a valuable service, especially for customers who have a debit account linked to automatic bill pay services. Many customers have expressed a desire to keep overdraft protection in this case, as they would rather be charged an extra $35 dollars if they forget to pay a bill than lose their insurance or utilities because the payment is denied.

UPDATE:  The line of credit overdraft from ING Direct was not announced last week; the bank has always offered this solution as an alternative to a flat fee.

About the banks

 

Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other. It operates in 32 states, the District of Columbia and 30 foreign countries.

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ING Direct

ING DIRECT, the nation's largest direct bank and largest thrift, is dedicated to inspiring Americans to become a nation of savers. Since its inception in 2000, more than 7.5 million Americans have entrusted their savings with ING DIRECT. ING DIrect offers- Electric Orange, an easy-to-use paperless checking account that also pays a great interest rate. The Orange Savings Account lets you save with no fees, no minimums and a great rate. The Orange Mortgage has low closing costs, a simple application.

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Citibank

Citi is today's pre-eminent financial services company, with some 200 million customer accounts in more than 100 countries. Citibank checking, savings, and money market accounts come with a Citibank Banking Card, which is your key to accessing your accounts online, at ATMs, by phone, or at branches.

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