Big Banks Overhaul Overdraft Policies

(Sept. 23)Bank of America, JP Morgan Chase and Wells Fargo announced plans to reform their overdraft policies and checking account options as consumers and lawmakers criticize the excessive fees and the processes by which banks levy the fees.

Beginning on October 19th, Bank of America will no longer charge overdraft item fees when an account is overdrawn by a total amount less than $10 for one day or charge overdraft fees on more than four items per day.

"Our immediate priority is those customers who excessively overdraw their accounts," said Susan Faulkner, Customer Segments & Deposits executive. "With these changes, we have increased customer choice in the area of overdrafts, limited daily overdraft fees, and significantly reduced fees for those customers who need help the most.

JP Morgan Chase plans on implementing their policy changes in the first quarter of next year.  They will eliminate overdrafts for debit cards unless the customers opt for overdraft services and overdraft fees if an account is overdrawn by $5 or less and will reduce the maximum number of overdraft fees per day to 3 from 6.

Chase will also update customer accounts and balances for debit-card purchases and ATM withdrawals as they occur. "The new posting order will be more logical for customers, and they will incur fewer fees," Scharf said.

Many banks reorder purchases made throughout the day from the highest priced item to the lowest, maximizing the potential number of overdraft fees levied against a consumer.

Fees charged per transaction vary from bank to bank but range anywhere between $25 and $35.

“The steps announced by Bank of America and Chase to reduce the burden of overdraft policies on consumers are significant improvements and will be good for their customers,” Rep. Carolyn Maloney (D-NY) said.

Changes implemented by Wells Fargo will impact Wells Fargo and Wachovia consumers.  They will no longer receive fees for accounts overdrawn by $5 or less and will not be charged for more than four overdraft fees per day.

While increased transparency and fairness in dealing with banking services are welcomed lawmakers are calling for reform across the board.

“What we need are consistent overdraft reforms for all Americans who have or open a bank account,” said Maloney.

Maloney introduced the Overdraft Protection Act, H.R. 1456 saying it “would require all banks to allow consumers to ask for overdraft protection, require that consumers be notified when a transaction is about to incur an overdraft fee, and require that banks post the transactions chronologically.”

Last week Senate Banking Committee Chairman Chris Dodd (D-CT) announced that he is working on a bill to protect Americans from excessive checking account overdraft fees.

“Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet,” said Dodd. “I am working on a bill to protect consumers from these fees.”

Banks stand to collect a record $38.5 billion in fees for customer overdrafts this year, according to the Financial Times.

90 percent of overdrafts are coming from 10 percent of checking account holders.  Most of these people have a credit score of 590 or so, according to Mike Moebs, chief executive of the research company Moebs Services.

Banks collect nearly $1 billion per year in overdraft fees from young adults and $4.5 billion from senior citizens, according to the Center for Responsible Lending.