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.