Mon. Jan 24th, 2022

Bank of America has become the latest major U.S. bank to withdraw fees charged from customers who overdraw their current accounts, in line with policies with new digital competitors.

The second-largest U.S. bank in terms of assets said Tuesday it will eliminate insufficient fund fees, or repayment check fees, from next month and reduce the cost of overdraft protection to $ 10 from $ 35 per levy.

Rohit Chopra, director of the Bureau of Consumer Financial Protection, last month criticized what he called “exploitative junk fees” when he ordered the U.S. regulator’s investigators to focus on overdrafts.

Most major U.S. banks, including JPMorgan Chase and PNC, have in recent years introduced policies that give customers longer grace periods to cover transactions and reduce overdraft fees. The lenders acted in response to pressure from Washington and competition from digital banks, which marketed consumer-friendly policies such as accounts without overdraft fees to participate. Last month, Capital One became the largest U.S. bank to completely scrap overdraft fees.

Increased financial regulation since the early 2000s has already reduced how much income banks earn from overdrafts. It has also forced banks to clearly set out how fees are activated. Annual overdrafts in U.S. banks fell 57 percent between 2008 and 2019, from $ 40 billion to $ 17 billion.

With the new changes, BofA expects its overdraft revenue to be 97 percent lower than 2009 levels this year.

Overdrafts across most banks have been suppressed for most of the past two years after the government’s coronavirus stimulus payments helped many low-income customers cover purchases with their savings. With the new policy in place, it is unlikely that overdrafts will ever return to pre-pandemic levels.

However, eliminating the fees could enable traditional banks to compete better with newer competitors.

Banks offering products that have reduced the cost of an overdraft account have achieved 40 percent higher account acquisitions since 2017, while customer acquisitions at financial institutions that have not changed their overdraft policies have dropped nearly 30 percent, according to a report by the curiosity research firm Curinos.

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