Bank of America Corp.’s announcement today that it plans to eliminate overdraft fees on debit card purchases is a clear effort to make right with consumers–and no doubt regulators–whose angst against big banks has reached a fever pitch in recent months, analysts say.

“Bank of America has lost the high ground, and they need to recapture it,” says Jim Eckenrode, research executive of the banking group at TowerGroup Inc. “They want to be first in the market as positioning themselves as being more customer friendly.”

Starting this summer, BofA will stop authorizing debit card transactions initiated by consumers who do not have sufficient funds in their checking account instead of charging them a fee to cover the overdraft.

The move by the Charlotte, N.C.-based issuer comes ahead of legislation requiring banks to give consumers the chance to opt in to overdraft protection. Some might deem eliminating consumers’ choice as being less than friendly, but most analysts believe that BofA’s peers will have to at least consider a similar move to stay competitive.

“It’s hard to see how direct competitors of Bank of America are going to be able to keep charging overdraft fees for debit card protections when Bank of America is not doing it,” said Gwenn Bézard, research director at Aite Group in Boston. “I can see a number of banks must be scrambling right now … to figure out how to address this.”

BofA likely was anticipating that not enough consumers would opt in anyway, some analysts say.

“Opt-in is pretty hard,” says Scott Valentin, an analyst at FBR Capital Markets. “The opt-in issue is a part of it.” 

A recent nationwide study by Acton Market Intelligence, a Lincoln, Neb.-based marketing firm, found that 57% of surveyed banking customers surveyed feel they do not need or want overdraft protection. The number of consumers surveyed in the poll was not immediately available.

However, it is possible that once consumers experience the embarrassment of not having enough funds in their account and being denied a purchase, they might eventually change their minds, Valentin says.

One top 10 bank expressed confidence that a significant number of consumers will decide to opt for overdraft protection, based on data it has generated from ATM use. About 60% of customers, when told during an ATM transaction that they are about to overdraw their account and risk being assessed a fee, still take out the funds, the bank says.

And one bank executive expressed dismay over BofA’s decision to eliminate choice for consumers entirely. “You’re not going to wake up and see the headline from U.S. Bank saying ‘we’re going to do the following things with overdrafts or debit cards or credit cards,’” U.S. Bancorp Chief Executive Rich Davis said during an investor conference sponsored by Citigroup Inc. on Wednesday. “We are not going to tell consumers what they are supposed to do and we’re not going to tell them what they are supposed to think.”

Many other banks also plan to give consumers the choice on overdraft protection.

JPMorgan Chase & Co., for example, said at an investor presentation in February that beginning March 29 customers may opt out of debit card overdraft protection. Chase also is making several changes to its fee structure for anyone who continues to use the coverage, moving to a flat $34 fee for overdrawn accounts. Previously, the New York-based bank had a tiered fee structure that charged up to $35. The bank also is moving to a standard $15 charge for each day that the account is overdrawn.

Additionally, Chase said it will change the way debit and ATM transactions are posted, recognizing charges in the order they occur, not largest to smallest. It also is adding a $5 cushion, so if the account is overdrawn by less than $5 it will not charge a fee.

In July, all new Chase checking account customers will be able to choose to opt in or out of its debit card overdraft coverage. By August, any of the bank’s existing customers that have not chosen to opt in no longer will receive overdraft protection.

The bank estimates that the changes will impact its annual after-tax income by about $500 million.

Birmingham, Ala-based Regions Financial Corp. also is going to give consumers the chance to opt in. “It remains to be seen how many would do that,” Grayson Hall, president and soon-to-be CEO of the regional bank, said at the Citigroup conference. “We plan to dramatically reduce the occurrences of charges in a given day … and lower the chances of being charged for low-dollar transaction.”

The bank is notifying its customers about their choices and will roll out the opt-in feature next month, Hall said.

Wells Fargo & Co. says it is still weighing how it will handle the new regulation. “We’re still in the middle of working on our plan and strategy,” says Richele Messick, a Wells spokesperson. Customers should expect to hear from the San Francisco bank “soon,” she says.

Currently, Wells charges a $35 fee for overdrawing any type of account.

Citigroup, on the other hand, said it has never allowed its debit cardholders to overdraw accounts when using ATMs or making purchases.


(Sara Lepro is a reporter with American Banker, a PaymentsSource sister publication.)

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