The End of Overdraft Fees?

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Here’s the latest on the overdraft front:

In a move that could bring an end to the $40 cup of coffee, Bank of America said on Tuesday that it was doing away with overdraft fees on purchases made with debit cards, a decision that could cost the bank tens of millions a year in revenue1 and put pressure on other banks to do the same.

….“What our customers kept telling me is ‘just don’t let me spend money that I don’t have,’ ” said Susan Faulkner, the bank’s deposit and card product executive, who said the overdraft changes were part of a broader push to build trust among its customers. “We wanted to help them avoid those unexpected overdraft fees.”

Well, that was a quick U-turn. As recently as last year it was “our customers are telling us not only that they want overdrafts covered, but they don’t even want to be asked first and they’re just fine with us fiddling with the order of payment even if it maximizes the number of overdraft fees they pay.” Hell, Bank of America was famous for its unwillingness to ever allow anyone to opt out of overdraft protection no matter how compelling the argument. Now, suddenly, it’s “our customers don’t want overdraft protection at all.”

I’m a little short on time right now, so I’m not sure what to think of this. On the surface, it’s good news. If it’s a choice between unlimited overdraft fees and no overdraft fees, then no overdraft fees is a clear winner. But then there’s this:

“Consumers have shown a willingness to incur overdrafts if it’s covering mortgage payments or car payments, but not to cover a hot dog and a soda,” said Greg McBride, senior financial analyst at Bankrate.com and one of a handful of analysts and consumer advocates briefed by Bank of America on its new policy. “They don’t want to incur overdrafts on everyday purchases.”

So how hard would it be for BofA to give customers this choice: “please cover payments over, say, $200 but not anything below that amount”? Why no middle ground? I need some time to think this over, but something tells me there’s more going on here than it seems.

But hey — maybe I’m just overly suspicious of the banking industry these days. Maybe.

1Tens of millions? For a bank the size of BofA, wouldn’t the real number be somewhere in the billions?

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