Banks cut overdraft fees

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One of life’s biggest annoyances – being hit with high overdraft fees when the bank is covering a transaction larger than your account balance – just got a little less annoying. More and more US banks are waiving or even eliminating dreaded overdraft fees.

Bank of America is the latest US bank to offer its customers fee relief. The nation’s second-largest bank (ranked by total assets) said it was reducing its overdraft fee from $35 to $10 starting in May, as well as waiving its insufficient funds (NSF) fee in February. (An NSF check fee is applied when the bank rejects a transaction, such as an NSF check, that it knows will create a negative account balance.)

Bank of America’s fee cuts are not the first in the banking industry, which has come under heavy criticism from consumer advocates and congressional lawmakers. Capital One announced in December that it was completely eliminating overdraft and NSF fees in early 2022, and in June Ally Bank, the largest digital bank in the United States, eliminated overdraft fees on all of its accounts. . In mid-2019, Discover was the first to get rid of all fees on certificates of deposit, checking accounts, savings accounts, and money market accounts.

“It’s great for the consumer, absolutely,” says G. Michael Moebs, economist and CEO of economic research firm Moebs Services. “Any move by a major player [to reduce fees]– and Bank of America is a major player – is very important.

Frustrating fees

Overdraft fees are among the most expensive and common fees charged by banks. The national median overdraft fee (that’s half the fee more and half the fee less) is $30, according to Moebs Services’ most recent survey of 3,309 depositories.

Unfortunately, these fees aren’t going to completely disappear anytime soon. In fact, a dozen of the top 16 retail banks still charge overdraft fees ranging from $34 to $37.50, according to a recent analysis by personal finance site ValuePenguin.

The financial blow for account holders is considerable. Consumers paid more than $11.68 billion in overdraft fees in 2019, according to a June report from the Center for Responsible Lending. If you include both overdrafts and NSF income collected by banks in 2019, the total fees paid by consumers amount to about $15.47 billion, according to a December report from the Consumer Financial Protection Bureau. (CFPB), which was created by the United States. government in 2010 following the financial crisis.

Who is most affected

Here are the key findings from a CFPB study that looked at overdraft and NSF fees paid by opt-in customers, or those who give a bank permission to charge them fees to cover overdrafts:

  • Most overdraft fees are paid by a small fraction of bank customers: 8% of customers bear almost 75% of all these fees.
  • Overdraft and NSF fees make up about 75% of total customer checking account fees and average over $250 per year.
  • Transactions that result in overdrafts are often quite small. For debit card transactions, the median amount that incurs overdraft fees is $24.
  • Most consumers who have an overdraft turn their accounts positive quickly, with more than half turning positive within three days.
  • The propensity to overdraft generally decreases with the age of the account holder, with 10.7% of those aged 18-25 having more than 10 overdrafts per year, but only 2.8% of those aged 62 and over falling into this category.

It’s also common for some banks to charge multiple overdraft fees on any given day, so it’s not uncommon for an account holder to incur three overdraft fees a day, even by accident, and end up with $100 or more. fees, says Chanelle Bessette, banking specialist at personal finance site NerdWallet. “Overdraft fees can be more than simple,” she says. “They can add up to crazy amounts over time.”

Unsurprisingly, overdraft fees are a big deal for customers, especially for account holders who are already in financial difficulty. “Overdraft fees tend to hit people when they’re already down, which makes them especially frustrating for people,” says Bessette. “Being punished for an already difficult situation can be very difficult. Having lower fees obviously eases consumers’ minds so that they don’t have to worry so much about occasional account overdrafts.

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