BofA’s revenue from overdrafts shrinks
NEW YORK — Bank of America says the revenue it gets from overdrafts has dropped 90 percent from a year ago, after the bank reduced overdraft fees to $10 from $35 and eliminated fees for bounced checks.
The nation’s largest banks are moving away from the practice of charging exorbitant fees on what are mostly small-dollar purchases after years of public pressure. Bank of America CEO Brian Moynihan said he expects that whatever residual income the bank earns from overdraft fees will come from small businesses using overdraft fees as a convenience.
BofA’s new overdraft fee policy was implemented starting in June. Moynihan said that in the policy’s first two months, overdraft fee revenue declined 90 percent and the bank was seeing fewer instances of the fees being collected. He did not share specifics on the number of instances.
“The remaining (people that get charged overdraft fees) are business owners who are moving money around,” Moynihan said. “It’s not individuals anymore, frankly.”
Starting in the middle of 2021, regional banks such as PNC and Capital One, as well as the online bank Ally, announced plans to eliminate overdraft fees or find ways to curtail them dramatically. Most of the banks said the fees largely affected the poor and racial minorities or that the pandemic had shown the banks they could earn big profits without charging fees on their customers.
While notable, consumer advocates considered these announcements symbolic wins, not substantial reform for the industry.
However, Bank of America’s decision in January to eliminate nonsufficient fund fees — sometimes referred to as a bounced check fee — as well as cut overdraft fees to $10 is credited with shaking up the industry. BofA for years was cited as one of the top collectors of overdraft fees and still brought in slightly more than $1 billion from such fees last year. Other banking giants such as Wells Fargo, JPMorgan Chase and Truist changed their overdraft fee practices shortly after BofA’s announcement.
Overdraft fee revenues at BofA have been declining for some time as the bank took several incremental steps to cut back its reliance on fees. Roughly half of all accounts opened at BofA now do not allow the customer to overdraft.
The bank took in $1.63 billion in overdraft fee income in 2015, the first year banks were required to publicly report overdraft fee revenues to regulators.
BofA “is miles ahead of what Wells and Chase have done. Both of them did some reforms — we certainly applaud those changes — but they are still charging the $35 fee,” said Mike Calhoun, head of the Center for Responsible Lending and a longtime critic of overdraft fee practices. Calhoun sits on an advisory board that includes several other consumer advocacy groups that advised BofA on the changes.
But regulators and researchers have taken note of the overall industrywide decline in overdraft fee revenues since the pandemic. In a July report, researchers with the Consumer Financial Protection Bureau found that “industry changes in overdraft program settings and in other checking account policies are making a meaningful difference in the amount consumers incur in various fees.”