Bank Of America Scraps Insufficient Funds Fees
It’s taken far too long, but some combination of public shaming and threats from regulators appears to be forcing big banks to phase out some of their most infuriating punitive policies. We’re talking about insufficient funds fees – those gut-punching tolls levied against people who have the audacity to miscalculate their account balance, CNN reported.
Photo Insert: Bank of America is the biggest US financial institution, so far to end fees for insufficient funds.
Bank of America just became the biggest US financial institution to end fees for insufficient funds. It also plans to cut overdraft fees from $35 to $10. The end of the bounced-check fee goes into effect next month, and the overdraft fee reduction will begin in May.
With those changes, the bank said, it will end up slashing overdraft fees by 97% from 2009 levels. Capital One, the sixth-largest consumer bank by assets, went a step further and eliminated overdraft fees entirely, as have smaller banks such as Ally.
Overdraft fees are extremely lucrative for banks. In 2019, financial institutions raked in $15 billion in revenue from punitive fees.
A full 80% of that revenue comes from just 9% of customers, according to the Consumer Financial Protection Bureau (CFPB.) That means banks are effectively squeezing their most vulnerable customers by charging the same people over and over with fees they clearly can’t afford.
“Bank overdraft fees cause particular harm to low-income consumers and communities of color, who are already disproportionately excluded from the banking mainstream,” researchers for the nonprofit Center for Responsible Lending wrote in a recent report. Although the fees are a big revenue driver, it’s safe to say banks are going to be just fine without them, Paul R. La Monica explained.
That's because financial stocks are up sharply over the past six months, thanks to rising long-term bond yields, which help make mortgages and other loans more profitable. Demand for mergers and IPOs is also bolstering financial institutions, bringing in lucrative investment banking fees.