Video: Banks curb overdraft fees

  1. Transcript of: Banks curb overdraft fees

    BRIAN WILLIAMS, anchor: We've reported in the past couple of weeks about a practice that rakes in a lot of money for banks, hitting customers with what can be huge overdraft fees, sometimes for purchases as small as a cup of coffee. Well, today three of this nation's biggest banks announced they are changing those policies. Our report on this tonight from our senior investigative correspondent Lisa Myers .

    LISA MYERS reporting: In a major reversal, Bank of America says, beginning next month, it will finally allow customers to opt out of overdraft protection . That means, if there's no money in the account, the transaction will be declined. Now the transactions are paid for a fee of $35 each. The bank also says it will not longer charge fees on very small overdrafts and will limit the maximum overdraft fees per day to a total cost of $140, down from $350 now. The changes come in response to an uproar by consumers, some who vented on YouTube .

    Unidentified Man: We hate fees. We can't stand bank fees.

    Unidentified Woman: Or, yes, I deserve two, two overdraft fees. But six? Come on.

    MYERS: Today Wells Fargo announced changes similar to Bank of America . JPMorgan Chase went farther to reduce overdraft fees and end the practice of reordering transactions to generate more fees. Consumer groups say all are welcome changes, but not nearly enough.

    Mr. ERIC HALPERIN (Center for Responsible Lending): Overdraft fees are one of the most abusive practices currently out there in the marketplace.

    MYERS: There are things consumers can do to avoid overdraft fees. Watch your account balance closely and try to maintain a cushion. And if your bank won't let you opt out of overdraft protection , shop around. Bank of America says it's making these changes now to provide immediate help to customers who repeatedly overdraw their accounts. But by addressing consumer complaints, banks also hope to quell demands for a crackdown by Congress . Lisa Myers , NBC News , Washington .

updated 9/23/2009 7:16:24 PM ET 2009-09-23T23:16:24

Banks are backing off harsh overdraft fees and policies. That's the good news. The bad news is they'll probably look to make up that lost profit elsewhere.

It's a worrisome prospect for the vast majority of customers who never overdraw their funds and have grown accustomed to perks like free checking accounts.

"Banks are going to have to get creative. Rather than generic free checking accounts, you're going to see lots of different flavors of products," said Bob Meara, a senior analyst with Celent, a Boston-based consulting firm for the banking industry.

That might mean the return of monthly fees or minimum balances for checking accounts, or the bundling of accounts with other services for a fee.

Customers could also be steered toward lower-cost services like online banking, Meara said. Use of debit cards, which bring banks revenue from store interchange fees, may be encouraged. And the network of bank branches across the country could shrink too.

Such changes could help offset the steep losses banks face as they overhaul their overdraft programs, which have come under intensifying scrutiny in the past year. Critics say automatic enrollment in overdraft programs, which has become an industry standard, is deceptive because most people assume they can only spend money they have when using debit cards.

But at Bank of America, overdrawing an account by as little as $6 currently results in a $35 fee. That charge can be applied multiple times in one day. The North Carolina-based bank and JPMorgan Chase now say they're easing up and putting caps on such fees. More important, customers will soon have to opt into overdraft programs, rather than being automatically enrolled in them. The changes will apply to new Bank of America customers. At JPMorgan, even existing customers will have to opt in to overdraft programs.

If customers choose not sign up, it could mean an enormous loss of profits.

$28 billion in overdraft fees
In 2007, banks earned about $28 billion from overdraft fees, according to Oliver Wyman, the parent company of Celent. That's more than the $29 billion consumers spent on major appliances and the $14 billion they spent on books, according to the research firm.

However, only 5 percent of customers accounted for 68 percent of revenue from overdraft fees. Meanwhile, 74 percent of customers didn't incur any overdraft fees.

Once given the choice, it's likely most people won't opt into overdraft programs, said Linda Sherry, a spokeswoman for Consumer Action, an advocacy group in Washington, D.C. But she noted that banks will probably put a new emphasis on getting people to sign up.

"There going to find new ways to push the same product," Sherry said.

The reversal on overdraft policies by banks is no coincidence.

A similar over-the-limit program for credit cards was also a target of sweeping reforms earlier this year. The new credit card law, which goes into effect in February, requires banks to give customers the choice to opt into over-the-limit programs.

That law only applies to credit cards, but lawmakers are now shifting their sights to debit cards. Last week, Sen. Christopher Dodd, D-Conn., said he plans to introduce legislation that would require customers to sign up for overdraft protection.

Banks act quickly
The response from banks was swift. The opt-in choice was only one of the changes Bank of America and JPMorgan announced late Tuesday.

Starting Oct. 19, Bank of America customers will no longer be charged overdraft fees when a customer's account is overdrawn by less than $10 a day. A $35 fee will still be levied if the account isn't brought into balance within five days.

The bank also will limit to four the number of times an overdraft fee can be charged on an account per day. That's a reversal from just this year, when the company raised that cap from five to 10. It also raised the fee this year for the first overdraft in a 12-month period to $35 from $25 — an increase that still stands.

JPMorgan Chase says it won't charge fees when accounts are overdrawn by $5 or less. The maximum number of fees per day will be lowered to three from six. And PNC Financial says it's lowering the fee for the first overdraft in a 12-month period to $25, down from $31.

Wells Fargo, based in San Francisco, declined to comment.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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