When it comes to pesky overdraft charges, most leading banks seem determined to do everything they can to help customers -- except actually help them avoid the fees.
Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and U.S. Bank announced changes to their overdraft rules last week that each says will be a boon to customers, including limits on how often and under what circumstances fees will be charged.
The changes come as lawmakers consider legislation that would crack down on what some see as dubious practices, including signing up customers for overdraft protection without first asking permission and covering overdrawn payments in ways that ensure the most charges.
It’s estimated that overdraft fees will total at least $38 billion this year, more than double what banks pocketed from such charges a decade ago.
“It’s a tremendously lucrative business,” said Sally Greenberg, executive director of the National Consumers League, an advocacy group. “The banks make it far too easy for people to get trapped in these fees.”
Clearly the big banks know they’ve been pushing it -- why else would they move in lock step to change their ways? But most won’t admit it’s the threat of legislative action that’s making them sing a different tune.
Anne Pace, a BofA spokeswoman, told me the company was merely being responsive to its customers.
“We’ve been hearing more and more from customers, given the economic climate, that they’re looking for help,” she said. “We’ve been very emphatic about that. It’s about our customers.”
Steve Dale, a U.S. Bank spokesman, said pretty much the same.
“We try to give our customers the highest level of satisfaction,” he said. “We simply decided that now is the time to look at our service charges.”
Beginning Oct. 19, BofA said, it will no longer charge its usual $35 overdraft fee if a customer’s account is overdrawn by less than $10 in a single day. It will also limit the number of overdraft fees it charges to four a day, rather than the current 10.
Beginning in the first quarter of next year, U.S. Bank will also waive fees if an account is overdrawn by less than $10 and will limit the number of overdraft charges to three a day.
Wells and Chase will stop charging fees if an account is overdrawn by less than $5. Wells will limit its overdraft fees to four a day, while Chase will stop at three. All subsequent transactions for each bank will be denied.
BofA, Wells and U.S. Bank will allow customers to opt out of their automatic overdraft-protection programs, meaning that customers can choose to have transactions rejected at the cash register if there are insufficient funds in an account.
However, all three banks will continue paying the biggest bills first, rather than in chronological order.
They say this ensures that larger, more important transactions, such as the rent or a car payment, move to the head of the line.
In reality, it increases the chances of overdraft fees kicking in for smaller bills if a customer basically lives paycheck to paycheck, as is the case for many people these days.
Chase is the only major bank to buck industry trends. It said it will start covering transactions in chronological order, at least when a debit card is used. For checks, Chase will continue paying the biggest transactions first.
More important, Chase will switch to an opt-in system for overdraft protection. In other words, all customers will be asked up front if they want the service, rather than being automatically enrolled and then having to request that overdraft protection be dropped.
U.S. Bank will do this only for new customers.
Opt-in is a far more consumer-friendly approach than opt-out. Studies show that most consumers won’t bother opting out because it’s seen as too much hassle, which is why nearly all businesses prefer opt-out to opt-in.
The plain fact is this: If a product or service is any good, it should sell itself. You shouldn’t have to foist it on people and force them to reject it.
Tom Kelly, a Chase spokesman, said the bank understands this, at least as far as overdraft protection is concerned. (He said customers shouldn’t expect an opt-in arrangement for everything.)
“We think it makes sense for customers to start without it and to then choose if they want it,” Kelly said.
He was the only bank official I spoke with who acknowledged that the prospect of congressional action influenced Chase’s decision.
“We know this is something that’s of interest to consumers and legislators,” Kelly said.
Whatever the reason, the bank made the right call, both with its opt-in decision and chronological ordering of debit-card transactions.
Chase’s changes will take effect in the first quarter of next year. Wells Fargo has yet to say when its changes will be introduced.
As for Citibank, a spokeswoman said no changes to the bank’s overdraft policies are currently in the works.
Greenberg at the National Consumers League gave Chase, BofA, Wells and U.S. Bank credit for addressing practices that put customers at a disadvantage, but she called the new measures “baby steps.”
“They’ve gone a foot, but they need to go a mile,” she said.
Greenberg said BofA and Wells should follow Chase’s example in asking whether customers want overdraft protection instead of making them cancel the service.
She also said chronological ordering of all transactions would help people avoid overdraft fees.
My feeling is that if banks truly want to treat people with respect, they should use all the technological means at their disposal to prevent customers from overdrawing their accounts.
Just as most ATMs will tell you if you have insufficient funds in your account for a transaction, why can’t a similar alert be immediately provided at the cash register when you use your debit card, or when you make a payment online?
Or how about this: Automatically send customers a text message or e-mail any time they overdraw an account and give them 24 hours to balance their funds before any fees kick in.
Julia Tunis, a Wells Fargo spokeswoman, said the bank was changing its overdraft policies “to deliver the best banking experience to customers.”
It’s hard to imagine a better banking experience than actually being given a sporting chance to keep your account balanced.
And it shouldn’t take the likelihood of legislative action to make banks do the right thing.
David Lazarus’ column runs Wednesdays and Sundays.
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Do banks play fairly with overdraft fees?