Bank of America says its revenue from overdrafts is down 90% from a year earlier, after the bank cut overdraft fees from $35 to $10 and eliminated bad check fees.
The country’s largest banks are moving away from charging exorbitant fees on what are mostly small purchases after years of public pressure. Bank of America Chief Executive Brian Moynihan told The Associated Press that he expects any residual income the bank makes from overdraft fees will come from small businesses that use overdraft fees as a convenience.
BofA’s new overdraft fee policy was implemented starting in June. Moynihan said that in the first two months of the policy, overdraft fee revenue was down 90% and the bank saw fewer instances of fee collection. He did not share details about the number of instances.
“The rest (people being charged overdraft fees) are business owners who are moving money around,” Moynihan said. “It’s not about individuals anymore, frankly.”
Beginning in mid-2021, regional banks such as PNC and Capital One, as well as online bank Ally, have announced plans to eliminate overdraft fees or find ways to drastically reduce them. Most banks said the fees hit the poor and racial minorities hard, or that the pandemic had shown banks they could make big profits without charging fees to their customers, explaining their decision.
While notable, these announcements were seen by consumer advocates as token victories, not substantive reform for the industry.
However, Bank of America’s decision in January to eliminate non-sufficient funds fees, sometimes called bounced check fees, as well as reduce overdraft fees to $10, is attributed to the industry shakeup. For years, BofA was cited as one of the top collectors of overdraft fees and still collected just over $1 billion from such fees last year. Other banking giants like Wells Fargo, JPMorgan Chase and Truist changed their overdraft fee practices shortly after BofA’s announcement.
Overdraft fee revenue at BofA has been declining for some time as the bank took several incremental steps to reduce its reliance on fees. Approximately half of all accounts opened at BofA are now accounts that do not allow the client to overdraw. The bank earned $1.63 billion in overdraft fee revenue in 2015, the first year that banks were required to publicly report overdraft fee revenue to regulators.
“(BofA) is way ahead of what Wells and Chase have done. They both made some reforms, we certainly applaud those changes, but they’re still charging the $35 fee,” said Mike Calhoun, director of the Center for Responsible Lending and a longtime critic of overdraft fee practices. Calhoun is part of an advisory council that includes several other consumer advocacy groups that advised BofA on the changes.
But regulators and researchers have taken note of the industry’s overall decline in revenue from overdraft fees since the pandemic. In a July report, researchers from the Consumer Financial Protection Bureau found that “industry changes to overdraft program settings and other checking account policies are making a significant difference in the amount consumers incur.” consumers at various charges”.