10/Regional banks are considering changes to controversial overdraft policies, following news last week that many of the big banks such as Bank of America are making it easier for customers to steer clear of such programs and avoid penalty fees up to $35 a pop.
Nashville's largest financial institution, Regions Bank, was the latest to make changes, announcing Thursday that starting early next year, customers who overdraw an account by less than $5 will pay no fee. Also, no one can get hit with more than four overdraft charges per day on higher amounts.
SunTrust Bank and Pinnacle Financial Partners are considering changes to be more lenient. JPMorgan Chase, U.S. Bank, BB&T and Wells Fargo have announced revisions.
Banks for years have automatically enrolled customers in overdraft protection programs that charge fees every time an account is overdrawn.
The median overdraft fee is $26, but the big Wall Street banks typically charge about $35 per transaction, according to Moebs Services Inc., a research firm in Lake Bluff, Ill. This year, banks will make about $38.5 billion in such overdraft fees, the firm estimates.
Protection fees have ensnared even more customers in recent years as they throw out the checkbook ledger and use debit cards for even small transactions, like buying a cup of coffee.
Consumers can quickly run up more than $100 in fees with a few small purchases when they overdraw accounts.
The banking industry has emphasized that consumers are responsible for knowing how much money they have at all times.
But the industry has faced greater scrutiny for overdraft policies for more than a year, the latest volley from U.S. Sen. Chris Dodd, D-Conn., and chairman of the Senate banking committee.
Dodd wants to force banks to ask customers if they want to opt into overdraft protection programs rather than automatically enrolling people.
Regions Bank has allowed customers to opt out of overdraft protection and its fees since 2004.
Generally, if bank customers decline an overdraft program, their debit card purchases would be automatically rejected at the merchant's register when there's not enough money in an account to cover it.
One drawback of opting out is that paper checks could be returned for insufficient funds, possibly causing bad check fees assessed by the merchant.
"These are design and structural changes primarily because the banks are listening to what is going on in the marketplace,'' said the founder of Moebs Services, Mike Moebs. He downplayed the significance of pending congressional legislation in forcing the changes, saying the retooling has been going on for months.
Critics want more
Rep. Carolyn Maloney, D-N.Y., also has sponsored legislation aimed at overdraft protection.
The Federal Reserve proposed changes in May of 2008 that would force banks to allow customers to opt-out of mandatory overdraft protection, but the agency never acted on the proposal, and continues to deliberate on separate but similar measures.
Kathleen Day, a spokeswoman for the nonprofit Center for Responsible Lending headquartered in Durham, N.C., said the banks' changes are too little, too late.
The organization wants legislation that will force bigger changes to bank policy.
"They're taking steps that for years they've said they couldn't do,'' Day said. "This has only come about because of the scrutiny the industry is getting from Congress and outrage from consumers."