By KEN SWEET, AP Business Writer
NEW YORK (AP) — Bank of America says revenue it earns from overdrafts has fallen 90% from a year ago, after the bank cut overdraft fees to $10 from $35 $ and eliminated fees for NSF cheques.
The nation’s biggest banks are moving away from the practice of charging exorbitant fees on mostly small-dollar purchases after years of public pressure. Bank of America CEO Brian Moynihan told The Associated Press that he expects any residual income the bank makes from overdraft fees to come from small businesses using overdraft fees for convenience.
BofA’s new overdraft fee policy was implemented from June. Moynihan said that in the first two months of the policy, revenue from overdraft fees fell by 90% and the bank was seeing fewer instances of fees collected. He did not share details on the number of instances.
“The rest (the people being charged overdraft fees) are business owners moving money around,” Moynihan said. “They’re not individuals anymore, frankly.”
Starting in mid-2021, regional banks such as PNC and Capital One, as well as online bank Ally, announced plans to eliminate overdraft fees or find ways to significantly reduce them. Most banks said the fees largely affect the poor and racial minorities, or that the pandemic has shown banks they can make big profits without charging fees to their customers, explaining their decision.
While notable, consumer advocates viewed the announcements as symbolic victories, not substantial reform for the industry.
However, Bank of America’s decision in January to eliminate the insufficient funds fee – sometimes called an NSF fee – as well as reduce the overdraft fee to $10 is credited with shaking up the industry. For years, BofA has been cited as a top overdraft fee collector and still brought in just over $1 billion from those fees last year. Other banking giants such as Wells Fargo, JPMorgan Chase and Truist all changed their overdraft fee practices soon after BofA’s announcement.
Overdraft fee revenue at BofA has been declining for some time as the bank has taken several progressive steps to reduce its reliance on fees. About half of all accounts opened at BofA are now accounts that do not allow the customer to overdraw. The bank collected $1.63 billion in overdraft fee revenue in 2015, the first year banks were required to publicly report overdraft fee revenue to regulators.
“(BofA) is miles ahead of what Wells and Chase have done. Both have made some reforms, we certainly applaud those changes, but they still charge a $35 fee,” said Mike Calhoun, director of the Center for Responsible Lending and a longtime critic of overdraft fee practices. Calhoun sits on an advisory board that includes several other consumer advocacy groups that have advised BofA on the changes.
But regulators and researchers have taken note of the overall decline in revenue from industry-wide overdraft fees since the pandemic. In a July report, Consumer Financial Protection Bureau researchers found that “industry changes to the settings of overdraft programs and other checking account policies are making a significant difference in the amount consumers incur. for various costs.
Adriana Morga, AP personal finance editor, contributed to this report from New York.
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