Bank of America Corp. will stop charging overdraft
fees on debit card transactions and will instead block a sale if a customer
lacks adequate funds, the company announced Wednesday.
Bank
of America now joins Citigroup Inc. as the second big bank to take
the step. Customers will still have the option of linking a checking account to
another account, such as saving account, so that they can access funds even
when their accounts are low.
The
move puts Bank of America well beyond recent Federal Reserve requirements that
pose some restrictions on overdraft fees.
"Our
customers have been clear that they want to know if a purchase is going to
overdraw their account," said Susan Faulkner, Bank of America's deposits and
card product executive, in a statement. "Our solution is simple, clear and
helps customers control their finances by reducing the possibility of
over-extending themselves at the point of sale with a debit card."
Bank
of America will implement the new policy in mid-June for new customers and
mid-August for existing customers, company spokesman Don Vecchiarello said.
"Their
needs are changing," Vecchiarello said of the bank's 59 million customers.
They've told us they want control and clarity."
Customers
will not be able to make debit card transactions if the cost exceeds their
account balance. They will, however, be able to make ATM withdrawals if they
overdrawn, but the machine will flash a warning letting customers know they are
about to overdraft their account and be assessed a $35 fee. Checks as well as
recurring debit charges, such as automatic bill paying, will still be charged
overdraft fees.
The
move was praised by consumer advocate groups, which have long criticized
overdraft fees as high-interest, short-term loans.
A
recent study by the Center
for Responsible Lending found that large banks charge an average of
$34 per debit overdraft charge. As recently as 2004, most banks would
automatically deny debit and ATM transactions when a customer did not have
enough money in his account. Now, customers pay $24 billion in overdraft fees
annually, according to the group.
Citibank
had already blocked debit and ATM transactions that would overdraft an
accounts. With Bank of America following suit, other banks could soon face
pressure to do the same or risk losing their customers.
"It
says to people that there is a place you can go where you will get a better
service or product," said Kathleen Day, a spokesperson for the Center for
Responsible Lending.
Treasury
Secretary Timothy Geithner also praised Bank of America's decision during a Congressional
hearing Wednesday. He said he hopes other banks will "follow the lead of their
competitors."
CRL
urged the regulators to come up with more strict rules that would limit the
number and amount of overdraft fees on debit and ATM transactions.
Recent Federal
Reserve rules require banks to get customers'
permission to enroll in overdraft protection programs, but CRL contends that
banks may use scare tactics to persuade customers to do that.
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