Bank of America to reduce overdraft fees as regulatory scrutiny grows

© Reuters. FILE PHOTO: A Bank of America logo is pictured in the Manhattan borough of New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri

By Elizabeth Dilts Marshall

NEW YORK (Reuters) - Bank of America (NYSE:BAC), the second-largest U.S. bank, said on Tuesday it would reduce overdraft fees from $35 to $10 beginning in May, the latest bank to reduce or scrap such charges amid growing regulatory scrutiny.

The bank will also stop charging customers a $35 non-sufficient funds (NSF) fee for bouncing checks or making other automated payments starting in February, and eliminate its $12 fee for overdraft protection services, the bank said.

Such fees have drawn the ire of U.S. lawmakers and the scrutiny of the U.S. Consumer Financial Protection Bureau (CFPB). The watchdog said last month it was exploring new guidance aimed at curbing banks' reliance on overdraft and NSF fees which have ballooned, generating an estimated $69 billion for banks in the third quarter of 2021 compared with $15 billion for the whole of 2019, it said.

Bank of America has been in discussions with the CFPB regarding the new policy, which it received "in a positive fashion," said Holly O'Neill, Bank of America's president of retail banking, in an interview.

Late last year, Capital One Financial Corp (NYSE:COF) said it was eliminating all overdraft and NSF fees. Transactions that overdraft a customer's account are declined unless the customer opts for overdraft protection.

JPMorgan Chase & Co (NYSE:JPM), the largest U.S. bank, has also said it would give customers a full day to bring overdrawn accounts up to zero before charging them and allow customers to tap into funds from direct deposits two days early.

Unlike some lenders, Bank of America decided not to eliminate overdrafts entirely or cut fees to zero.

"Eliminating overdraft altogether is not really what clients want," O'Neill said, citing the bank's conversations with community advisory groups.

O'Neill expects more banks to offer "access to overdraft with a minimal fee. If you take the fee to zero, it is going to be very hard for banks to allow clients even that occasional access."

Bank of America does not break out revenue from overdraft and related fees, but estimated on Tuesday that they made up 1% of revenue in 2021. The changes, coupled with others over the past 12 years - including stopping debit card overdraft charges at point of sale and offering low-cost, short-term loan coverage - reduce overdraft fee revenue by 97% from 2009, it added.