Recent decisions by Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. to revamp their overdraft policies will have a limited effect on debit cardholders, industry observations and research suggest. But they likely will put a sizable dent in the issuers' revenue.

"This is not the type of change that will impact a large swath of bank customers," says Greg McBride, senior financial analyst for Bankrate.com, a North Palm Beach, Fla.-based consumer Web site.

A study the Federal Deposit Insurance Corp. released in November 2008 supports McBride's contention. The report "FDIC Study Of Bank Overdraft Programs" found that 74.1% of bank customers did not overdraw their checking accounts during a 12-month period, so they did not face paying overdraft fees.

However, 25.9% of checking-account customers reported overdrawing their accounts during that period: 12% had one to four overdrafts, 5% had five to nine overdrafts, 4% had 10 to 19 overdrafts, and 4.9% had 20 or more overdrafts, according to the study of 1,171 FDIC-supervised bank overdraft programs from May 2006 through December 2006. The FDIC also requested customer account and transaction level data from 39 financial institutions.

Last week, BofA , Wells Fargo and Chase, the nation's three-largest debit card issuers, announced they were revamping their debit card overdraft policies, a source of huge revenue for the banks and the ire for consumer groups and lawmakers.

Wells Fargo & Co., the nation's second-largest debit card issuer, last Thursday announced that it is eliminating overdraft fees for customers who overdraw their checking accounts by $5 or less. In addition, the San Francisco-based bank will not charge fees for more than four overdrafts per day.

Customers also can opt out of the bank's overdraft coverage. Wells Fargo, which purchased Charlotte, N.C.-based Wachovia Bank in 2008, said the changes also apply to Wachovia.

"Most of our customers don't need overdraft coverage in any given month, but for those who do we hope these changes will help them minimize overdraft fees," Carrie Tolstedt, Wells Fargo's senior executive vice president of community banking, explained in a statement. Wells Fargo had issued 28.7 million debit cards by the end of 2008, according to ATM&Debit News 2010 EFT Data Book.
Wells Fargo's announcement followed similar ones made the same week by Chase and Bank of America.

Chase announced last Wednesday it is eliminating overdraft protections on debit cards unless the customer opts in to the service. The New York-based bank also is eliminating overdraft fees if a customer's account is $5 or less overdrawn, reducing the maximum of number of overdraft fees per day from six to three, and posting debit card payments and ATM withdrawals as they occur instead of the processing the largest transactions first, a policy that historically has caused small purchases to overdraw accounts.

Chase, which will implement the changes during next year's first quarter, is the nation's third-largest debit card issuer with 28.2 million cards issued as of the end of 2008, according to the EFT Data Book.

The overdraft policy change is designed to accommodate customers' evolving buying habits, Chase says. 

"We recognize the tremendous growth in our customers' debit card usage, and we're revamping our overdraft policies and posting order to be more consistent with the way they use their accounts," Charlie Scharf, Chase head of retail financial services, said in a statement.

Effective Oct. 19, BofA says it will begin a two-phase process to create more transparency regarding its policies, but the bank does not specifically mention debit cards in its announcement of the change. Though BofA describes the changes as "checking account options," its customers use debit cards to withdraw funds from their accounts.

Under the policy change, the Charlotte, N.C.-based bank no longer will charge an overdraft fee if a customer's account is overdrawn by less than $10 for one day. BofA also will not charge overdraft fees on more than four transactions per day.
Beginning next June, BofA will introduce an annual limit on the number of times cardholders can overdraw their accounts when purchasing items at the point of sale. 

The bank also plans to improve the process for customers to opt out of overdraft protection. BofA staff members, for example, will provide customers the choice to opt in to overdraft protection when they open an account.

"With these changes, we have increased customer choice in the area of overdrafts, limited daily overdraft fees and significantly lowered fees for those customers who need the most help," says Susan Faulkner, BofA customer segments and deposits executive.

BofA is the nation's largest debit card issuer with 36.5 million debit cards issued at the end of 2008.

Service charges and debit card overdraft fees have for many years been a huge source of revenue for banks, says Leslie Parrish, senior researcher for the  Durham, N.C.-based Center for Responsible Lending, which began publishing studies years ago about debit card overdraft fees. The center also has offices in Washington, D.C., and Oakland, Calif.

In 2008, the nation's banks generated $39.5 billion in service fees, with the lion's share-$29.2 billion-coming from fees charged to customers for their overdrawn accounts, Parrish says. The average customer overdraft fee was $34 in 2008, Parrish says.

 In 2008, BofA reported $8.03 billion in revenue from fees stemming from overdrawn accounts, and Chase reported  $2.94 billion in revenue from such charges.  Wells Fargo reported $2.35 billion in fees from overdrawn accounts.
 "The percentage [25.9 percent] of bank customers who overdraw their accounts are paying the fees," says McBride, noting the fees are avoidable. "Bank customers can link their checking accounts to their savings accounts to avoid the fees instead of borrowing the money from the bank. They also can take five minutes each day to balance their checkbook, which means they have to step away from Facebook for five minutes."

Both BofA and Chase announced changes to their overdraft policies last Monday and Tuesday.

Sen. Christopher Dodd, chairman of Senate Banking Committee, who announced that he is working on a bill to "rein in abusive overdraft fees," praised the banks for changing their overdraft policies.

"These are positive changes, but the system has gotten completely out of whack," Dodd said in a statement last Wednesday. "We are talking about abusive bank practices that never should have been instituted in the first. I will take a close look at the banks' new policies as I continue to work on a bill to permanently protect customers."  Dodd is drafting the legislation with Sen. Chuck Schumer, D- N.Y. Wells Fargo outlined changes to its overdraft policies last Wednesday, the same day Dodd issued a statement about overdraft fees.  U.S. Rep. Carolyn Maloney, D-N.Y. and chair of the Joint Economic Committee, introduced similar legislation in the House last March.

The Center for Responsible Lending supports legislation to protect consumers from excessive overdraft fees. "Media scrutiny and proposed legislation in Congress prompted three of the nation's largest banks to unveil changes to their overdraft policies, but the changes are far from enough and, in fact, underscore the need for comprehensive overdraft reform as quickly as possible," Eric Halperin, director of the Center For Responsible Lending, said in a statement. ATM

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