Bank of America, J.P. Morgan Chase to Further Limit Overdraft Fees

By Nancy Trejos and Binyamin Appelbaum
Washington Post Staff Writers
Wednesday, September 23, 2009

Two of the nation's largest retail banks said they will announce new limits on overdraft fees Wednesday as the industry seeks to contain rising anger over the practice.

Bank of America, the largest retail bank, said that beginning Oct. 19 it will let customers decline overdraft protection, and it will no longer charge fees on overdrafts if the account is in the red by less than $10. The bank also will limit the number of times customers can be charged overdraft fees to four times a day -- reversing changes earlier this year that increased the limit to 10 times a day.

J.P. Morgan Chase announced even farther reaching changes, agreeing to many of the reforms sought by consumer advocates. Beginning in the first quarter of next year, the bank will ask debit card customers whether they would like to be able to overdraft. Those who decline will not be able to use their debit card to spend more than the amount remaining in their account. The company also said it will not charge overdraft fees if the account balance is in the red by less than $5 and that it will charge no more than three overdraft fees each day, down from a previous limit of six fees.

J.P. Morgan also said that it would subtract charges on debit cards and withdrawals from ATMs in the order that the transactions happen, ending a procedure that increased the number of overdraft fees in some cases by debiting larger transactions first, exhausting available funds more quickly.

The announcements comes as Congress is considering cracking down on overdraft fees, which are projected to generate as much as $38.5 billion in revenue for the industry this year. Most banks do not notify customers before they overdraw their accounts, nor do they give them a chance to cancel the transaction.

Sen. Christopher J. Dodd (D-Conn.) said last week that he plans to introduce legislation requiring banks to get permission from customers before granting them overdraft protection. If the customer declines the protection, the transaction would be rejected and no fee would be charged. Rep. Carolyn B. Maloney (D-N.Y.) has introduced a similar bill. The Federal Reserve is also considering new regulations.

"Bank of America is taking a step in the right direction, but we need legislation to protect every American with a bank account from these unfair fees," Dodd said. "We wouldn't need legislation if the industry acted responsibly in the first place."

Ed Mierswinski, consumer program director for consumer advocacy group U.S. PIRG, questioned Bank of America's timing. "This is totally in response to Sen. Dodd raising the profile of this issue," he said. He said there are other practices that Bank of America should change, such as the order in which transactions are processed. He said the bank should also offer the opt-in feature to existing customers. "It's a strategy to deflect congressional criticism. It's really too little, too late."

Brian Moynihan, president of consumer and small-business banking at Bank of America, said the proposed legislation had nothing to do with the decision to change policies. "I think everybody is listening to the consumer out there and saying in this tough economy, we are figuring out a solution," Moynihan said.

Industry representatives also argue that customers are responsible for their finances, and that if they monitored their spending, they could avoid overdraft fees. Additionally, they say, they are providing a service to customers who prefer overdraft protection as a way to avoid the embarrassment of having a transaction denied.

Starting in June, Bank of America also will set an annual limit on the number of times customers can overdraw their accounts at the point-of-sale, such as when they are at the cash register at a grocery store. New customers who want overdraft protection would have to sign up when they open their accounts.

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