Despite new Federal Reserve rules requiring a customers' consent before banks can institute overdraft fees -- and banking institutions' promises to make rules regarding this practice more transparent -- confusion still reigns. In June, the Consumer Financial Protection Bureau noted that bank customers who opt in to a bank's overdraft actually pay more in fees than those who do not opt in.
Perhaps in an effort to simplify the issue, Bank of America (BAC -0.13%) is reported to be considering a checking account that doesn't allow overdrafts of any kind. Since the CFBP estimates that over 60% of banks' income from checking accounts comes from overdraft and similar fees, this news raises the question: Would Bank of America be leaving money on the table?
Simpler, but not necessarily less costly
Bank of America charges $35 for each overdraft -- up to a maximum of four per day -- so, on the face of it, a checking account that did not offer overdraft protection would seem to be a money-saver. If there is not enough money in the account, the transaction would be denied, as in the case of a debit card purchase, or any check written against the account would be returned for insufficient funds.
On the downside, the bank would instead charge a $35 non-sufficient funds charge on returned checks. Bank of America may levy up to four NSF fees per day, as well, so there would be no savings involved for the customer, particularly if bounced-check charges were imposed by the merchant involved. The customer would also still be exposed to an extended overdrawn account charge of $35 if the balance was not beefed up after five business days.
If this seems pricey, consider PNC Financial's (PNC 0.29%) fee schedule, which charges $36 per overdraft, up to four each day. In addition, PNC charges a fee of $7 per day, up to a total of $98, to those that do not add to a checking account balance that stays underfunded for five consecutive days. Similarly, Wells Fargo (WFC -0.56%) charges $35 per overdraft, up to four per day, as well.
No loss for Bank of America
Based upon its fee schedule, I don't see Bank of America losing any money if it decides to offer this new checking account. For the most part, overdraft fees would be replaced by an equal NSF fee, and the only possible loss for the bank would be the $10 daily transfer fee it charges for overdraft protection.
A second reason Bank of America wouldn't suffer is because only the most careful of customers would ultimately choose an account where overdraft protection is not an option. According to the CFPB's findings, even someone who tends to overdraw might find that opening such an account would cost less than choosing a regular checking account -- and opting in to overdraft protection.
A no-overdraft account doesn't seem like it would differ appreciably from any of the current offerings from Bank of America, minus the opt-in by the customer. After all, writing a check against an account that lacks sufficient funds is technically illegal, so banking customers who feel they are at risk of running out of money will probably still opt in to the bank's overdraft services, while those who keep a closer eye on their finances won't find such a step necessary.
If Bank of America decides to offer this new account, I see it as more of a marketing ploy than a product that fulfills a real need, much like Wells Fargo's new rewards credit card. The card allows users to use rewards points to pay off several types of consumer loans at the bank, even though Wells Fargo currently offers cards that could achieve the same end. However, a new product launch can create the kind of buzz that brings in new customers, so it's definitely not a bad idea.
It's not certain Bank of America will introduce a no-overdraft checking account, but even the rumor of it seems to be generating some positive press, something Bank of America can always use.
