Bank of America Corp. is suspending a previously announced hike to its overdraft fees.
Earlier this month, the bank sent notices to customers announcing a slew of pricing changes, scheduled to go into effect June 5, that would have raised the overdraft fee to $39 from $35 per item. On Monday, citing the "increase in unemployment," the bank said it was suspending that increase and keeping the fee at $35, according to spokesman Jim Pierpoint.
The bank is also introducing a program for customers who have lost their jobs, where it will waive monthly account-maintenance fees for three months, and will refund or waive insufficient funds and overdraft fees for some customers on a case-by-case basis.
The changes come at a time when banks' overdraft programs -- in which the bank automatically covers any account shortfalls but charges a fee -- have come under increased scrutiny. Congress is considering legislation that proposes sweeping changes, such as requiring banks to notify customers at automatic teller machines or point-of-sale terminals if they're about to trigger an overdraft and give them the chance to cancel the transaction, or accept the overdraft service and associated fee. Meanwhile, the Federal Reserve just ended a public comment period in March to determine whether banks' current handling of overdraft fees needs to be changed.
Among the other changes that will hit Bank of America customers in June: a one-time fee of $35 if their account is overdrawn for more than five days. Meanwhile, the bank is raising monthly maintenance fees on certain checking accounts, as well as the balance requirements needed to avoid fees.
The changes represent the second time this year that Bank of America has tinkered with its overdraft program. In April, the bank dropped a discounted fee of $25 for the first overdraft, while raising the maximum number of times a customer could be hit with a fee in a single day.
Overdraft fees are key contributors to banks' bottom lines. As much as 75% of the industry's consumer-fee income comes from overdraft and insufficient-funds charges, according to Mike Moebs, chief executive of Moebs $ervices Inc., an economic research firm in Chicago, who expects banks and credit unions will reap over $40 billion in such fees this year. Indeed, overdraft fees have been relatively stable until recently, with a median overdraft fee of $25 for the past five years. But with some of recent price hikes by large financial institutions, that fee is expected to climb to $27.50 this year.
Over the past year, banks have raised the fees in their overdraft programs. In November, for example, Citigroup Inc. started charging some customers a new $10 "overdraft program transfer fee" to transfer money from a savings account or line of credit to cover a checking-account shortfall, after raising overdraft fees earlier in the year. Wells Fargo & Co. also raised its insufficient-funds fee in certain markets in July.
Many banks are also adopting tiered-rate structures that assess a lower penalty for first-time occurrences but quickly ramp up the costs for repeat offenders. Over the next several weeks, SunTrust Banks Inc. will adopt a tiered overdraft fee structure for its free checking accounts, charging $25 for the first item and $36 for subsequent overdrafts. Previously, the bank had charged a flat fee of $35.