When Bank of America announced last week it was effectively canceling point-of-purchase debit overdraft fees, the announcement was made with much fanfare under the guise of “protecting consumers.”
Most overdrafts occur by an unwitting consumer, unaware of how much money is in their account. Maybe a forgotten check cleared or a scheduled auto-debit payment went through unannounced, and so an innocent swipe at a coffee shop or convenience store turns into a costly overdraft. Wouldn’t it be better for the consumer, if perhaps potentially embarrassing, if the otherwise innocuous transaction weren’t allowed at all? Of course it would, BofA said.
Sure, the policy may end up costing BofA billions of dollars in easy, breezy fee income, but that means nothing in return for the goodwill generated on behalf of its struggling clients, not to mention the benevolent taxpayer.
To listen to the nation’s largest bank tell it, one might actually be compelled to applaud the effort as a meaningful gesture toward rebuilding consumer trust.
But caveat emptor, and a savvy consumer shouldn’t buy it.
BofA, already burdened by tighter federal scrutiny and nursing a tarnished reputation after being obliged to take embarrassingly huge sums of taxpayer cash, has simply decided to take the path of least resistance.
Rather than endure the logistical nightmare of creating an overdraft opt-in policy, as is federally mandated to occur on July 1, and pay for its administration, the bank simply decided to avoid the headache altogether.
No opting-in, no opting-out – simply a blanket policy of denial.
We’ve written in this space before in praise of overdraft protection and its associated fees, if for nothing else than as an easy way for banks to generate cash and, to a lesser degree, as an effective financial education tool. Nothing teaches an overdrawn consumer more about the importance of keeping a balanced checkbook than a $35 slap on the wrist.
But the pendulum has swung away from bank benefits and towards consumer protection, and a federal edict demanding consumers opt-in to such programs has negated the “easy money” aspect for banks.
No, the easy way now is to simply deny consumers choice, all in the name of their own protection.
A smart consumer might complain about said lack of choice, and may argue that on some rare occasion, a $35 fee might be worth it in order to make some unknown, but crucial, debit purchase. But we think most will take the slight embarrassment of having a purchase declined in favor of walking away still in possession of their own money.
The interesting story now will be to see who, if anyone, follows Bank of America’s lead. In an industry known to embrace free market capitalism, BofA’s action is a classic example of reading and reacting to the market.
Rather than comply with burdensome regulations, the bank simply made its own, easier to follow rule. And there’s absolutely nothing wrong with that. Frankly, we applaud them for it.
We also applaud the way BofA’s shrewd marketing team deftly spun their path of least resistance policy into a none-to-small public relations victory. “Bank of America – doing more for you by creating less work for us.” Brilliant, really.
As for the “woe-is-us” lost fee income, according to reported figures, overdraft fees represented roughly $1.7 billion of the estimated $38.5 billion in deposit fees raked in by banks nationwide last year, or a little more than 4 percent.
We’re pretty sure an institution like Bank of America can find a way to make up a 4 percent fee income margin. And we’re pretty sure the new fees they inevitably impose on consumers to make up the deficit won’t be trumpeted nearly as loudly as the ones they’ve eliminated.
Nobody said the path of least resistance couldn’t also be profitable.
