Bank of America, in response to complaints from consumers, decided to solve the problem of onerous and unexpected debit overdraft fees by banning overdrafts altogether. The decision, while greeted warmly by some customers, caused others to grouse about restricted ability to choose. Now, the bank is considering a middle ground: text messages that allow customers to opt in to overdraft fees, satisfying consumers’ desire for informed choice.
In years past, banks came under fire for unannounced overdraft fees on debit cards. Without a consumer’s knowledge, a bank could charge a $35 fee on a $3.50 purchase. The Credit CARD Act of 2009 prohibited these practices, requiring consumers to opt in each time they spent more money than they had in their checking accounts with full knowledge of the fees they would incur.
In March of last year, before the CARD Act took effect, Bank of America decided to prohibit overdrafts altogether. If a consumer tried to spend more money than she had, her debit card would be denied at the point of sale. The bank explained that it received feedback from customers that they did not want to spend beyond their means, so it would deny all overdraft transactions across the board.
Other banks had no intentions of implementing similar policies. “We are not going to tell consumers what they are supposed to do and we’re not going to tell them what they are supposed to think,” quipped Richard Davis, CEO of U.S. Bancorp.
Tim Geithner, the Treasury Secretary, commended BofA’s decision before the House of Representatives. “After years when we saw financial companies competing to exploit vulnerable borrowers, it is good to see banks competing to benefit their consumers. I urge other large banks that have not acted to follow the lead of their competitors.”
Customers value freedom of choice at $35 a transaction
Although customers wanted protection from surprise overdraft fees, they found BofA’s blanket approach too heavy-handed. After implementing the no-overdraft policy, the bank saw fewer customer service calls, complaints and closed accounts, and overall perceived “a significant improvement in our customer experience.”
However, many customers also complained that they wanted the ability to choose for themselves. In response, BofA is considering allowing customers to opt in to overdrafts on a transaction-by-transaction basis via text message, knowing the fines they would incur.
“[Customers] don’t want to go back to the experience that they were having before, where they were consistently incurring multiple $35 fees,” continued Readhead. “We think the text message solution is a much better approach to let the customer choose, because the customer still wants to choose whether or not they want to proceed with the transaction.” The program may benefit both consumers and Bank of America. BofA goes from receiving no revenue from overdraft fees to earning some, while consumers are given the ability to make any transaction that they choose.
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