As we have seen with the passage of the Credit CARD Act, legislators are looking to put an end to abusive practices within the banking system. Realizing they are no longer beyond the reach of regulation, some banks have reconsidered other practices which may be construed as abusive. Recently, several banks initiated plans to overhaul their overdraft fees in an effort to calm public outcry, and avoid impending legislation.
An overdraft occurs when the withdrawals from your bank account exceed the available funds, resulting in a negative balance. In our technological age it has become all too simple to trigger an overdraft as debit cards and automatic withdrawals are commonplace. If we do not keep meticulous records of our transactions, we can easily put ourselves in a position to incur an overdraft — a costly financial error. A recent FDIC study indicated that overdraft charges range between $10 and $38, with a median fee of $27. While there’s no definitive figure, it is estimated that banks earn close to $17.5 billion dollars a year in overdraft fees. Therefore, it will be interesting to see how banks offset the loss of revenue.
The first three banks to move forward with restructured overdraft plans are Bank of America, J.P. Morgan Chase and Wells Fargo. First, these banks will offer clients the ability to opt out of the service, meaning that any time an account becomes overdrawn the charges will be denied and no fees will be assessed. For those that choose to remain in overdraft protection programs, each bank has established new fee structures. The new structure is similar among all three; however, there are some differences. For instance, J.P. Morgan Chase and Wells Fargo will no longer assess fees for accounts overdrawn by five dollars or less. Bank of America, however, will not charge any fees unless the amount overdrawn is more than $10. Furthermore, these banks will cap the daily amount of penalties someone could experience. J.P. Morgan Chase will charge a maximum of three penalties per day and Bank of America and Wells Fargo will allow four per day. Currently, Chase charges up to six penalties per day, and Bank of America and Wells Fargo charge up to ten. Each institution will implement their restructured overdraft plans at various times; therefore, I recommend you visit their website or contact customer service for more information.