Bank of America has taken the preemptive step of announcing an end to overdraft fees on debit card purchases. As is frequently the case when the feds are mulling new regulations, an industry giant moves to police itself.
BofA’s big decision may cost it quite a bit in fees, but many expect that it will win a lot of new fans. After all, no one appreciates getting charged $35 for falling 12 cents short the day before payday.
The move is expected to be copied by other major banking institutions. This is a big win for consumers, since this is one of the single biggest challenges faced by people that live paycheck-to-paycheck.
New regulations to be enacted later in 2010 would force banks to allow an opt in before charging overdraft fees. If BofA’s move sticks and other banks follow suit, it is unlikely that new rules would have a dramatic effect, since the impact might be spread over several months through voluntary implementation by individual banks.
It is actually very unlikely that other banks will continue their current overdraft practices when it comes to debit cards. Since Bank of America controls 10% of domestic deposits, they carry a lot of weight when it comes to industry trends. Other banks are really forced to follow suit, which should result in rapid change across the banking industry.
The difference that consumers will experience is that instead of paying $40 for a combo at McDonald’s, their transaction will be denied. While this may be an embarrassment for some, it is sure better than having your name in the newspaper for a personal bankruptcy filing.
An end to this practice will reportedly cost the banking industry between $36-38 billion a year, based on 2008 figures and a report by Moebs Services. This will be one of another limitations on banking fees moving forward.
Given the upheaval in the banking industry over the last couple of years, this move should have been anticipated. Bank of America also embraced the new rules of the Credit CARD Act a couple of months prior to the implementation date.
It is more about voluntarily missing out on some short term profit opportunities for the purpose of being labeled “the good guy.” With this announcement, BofA is indeed, at least for the time being, the good guy.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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