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Bank of America gets tough on overdraft fee refunds - The Boston Globe
Bank gets tough on overdraft fee refunds
Consumer group sees bid for more revenue
By Sasha Talcott, Globe Staff | August 26, 2005
Bank of America Corp. customers who overdraw their accounts can forget about getting a reprieve on fees: The bank sent its branch employees nationwide an internal memo last week telling them they are not allowed to grant refunds under most circumstances, especially for people who rack up fees more than once per year.
The memo, labeled a ''call to action" and obtained by the Globe, told branch staff that Bank of America will compile a report of the 10 branches per market that grant the largest amounts of overdraft refunds, and that executives will ''coach those banking centers with the highest occurrence of refunds" to adhere to the bank's strict policies. ''Do not grant customers a discretionary refund if the fee charged is $34," executives wrote.
Bank of America charges overdraft fees ranging from $19 for customers who overdraw their accounts once per year, to $31 if customers slip twice to four times, and $34 beyond that.
Generally, customers overdraw accounts by writing checks or using debit cards without enough funds to pay for the transactions.
Bank of America's directive drew fire from the Consumers Union, nonprofit publisher of Consumer Reports, which said it shows an example of a bank asking its branch staff to behave less favorably toward customers.
''The idea that a bank would tell its front-line people 'Don't give away refunds when you think it's justified' is really outrageous," said Gail Hillebrand, a senior attorney for the group. ''It suggests these fees are not designed to change customer behavior. They're designed to ramp up revenue for the bank."
The memo grants a small amount of leniency for customers who overdraw for the first time that year: If these customers rack up multiple fees at once -- for example, if they overdraw their accounts by taking too much money out of the ATM, then buy something with their debit cards on the same day -- the bankers have leeway to refund all but one $19 fee.
For other customers, bankers are not permitted to refund any fees, according to the memo, unless there is a bank error or ''other extenuating and unusual circumstances." Such circumstances would include someone who has been assessed more than $500 in overdraft fees in one week (the banker has the option to refund anything above $500 but not dip below it, while ''keeping in mind the best interests of both the customer and the bank's shareholders"), a customer who has overdrawn his account by less than $3, or some instances in which the bank is holding a customer's deposit.
A Bank of America spokeswoman, Alex Liftman, said the $19 fee the bank assesses the vast majority of customers who overdraw their accounts -- those who overdraw only once per year -- is among the lowest in the industry. She also said the bank encourages customers to actively manage their accounts and purchase overdraft protection to avoid such fees.
Overdraft fees are an important source of revenue for banks. In the last two years, the region's two dominant banks, Bank of America and Citizens Financial Group, have introduced ''free checking" accounts, joining other banks that already offered free accounts. But free checking is not always free for customers: The banks profit from those accounts by charging customers overdraft fees, bank consultants say, while they also earn money on debit cards.
Suzanne Moot, a banking consultant with M&M Associates in Milton, said about a third of banks' revenue on free checking accounts comes from such insufficient-funds fees.
Another consulting firm, John M. Floyd & Associates, estimates that the average customer overdraws 3.4 times per year. Its executive vice president, Steve Swanston, said insufficient-funds fees can benefit customers: Banks pay their obligations even when they do not have funds to cover it, then assess a fee, helping customers avoid bad marks on their credit, late fees, and other problems.
Each bank sets its own policies on when to refund overdraft fees, Moot said. If they crack down too harshly, she said, they could alienate some customers.
''They'll make some customers very angry they don't want to make angry," she said.
''From a banker's perspective, that's the trade-off. You don't want to lose a customer over a relatively small dollar amount."
Sasha Talcott can be reached at stalcott@globe.com.
© Copyright 2006 Globe Newspaper Company
Bank gets tough on overdraft fee refunds
Consumer group sees bid for more revenue
By Sasha Talcott, Globe Staff | August 26, 2005
Bank of America Corp. customers who overdraw their accounts can forget about getting a reprieve on fees: The bank sent its branch employees nationwide an internal memo last week telling them they are not allowed to grant refunds under most circumstances, especially for people who rack up fees more than once per year.
The memo, labeled a ''call to action" and obtained by the Globe, told branch staff that Bank of America will compile a report of the 10 branches per market that grant the largest amounts of overdraft refunds, and that executives will ''coach those banking centers with the highest occurrence of refunds" to adhere to the bank's strict policies. ''Do not grant customers a discretionary refund if the fee charged is $34," executives wrote.
Bank of America charges overdraft fees ranging from $19 for customers who overdraw their accounts once per year, to $31 if customers slip twice to four times, and $34 beyond that.
Generally, customers overdraw accounts by writing checks or using debit cards without enough funds to pay for the transactions.
Bank of America's directive drew fire from the Consumers Union, nonprofit publisher of Consumer Reports, which said it shows an example of a bank asking its branch staff to behave less favorably toward customers.
''The idea that a bank would tell its front-line people 'Don't give away refunds when you think it's justified' is really outrageous," said Gail Hillebrand, a senior attorney for the group. ''It suggests these fees are not designed to change customer behavior. They're designed to ramp up revenue for the bank."
The memo grants a small amount of leniency for customers who overdraw for the first time that year: If these customers rack up multiple fees at once -- for example, if they overdraw their accounts by taking too much money out of the ATM, then buy something with their debit cards on the same day -- the bankers have leeway to refund all but one $19 fee.
For other customers, bankers are not permitted to refund any fees, according to the memo, unless there is a bank error or ''other extenuating and unusual circumstances." Such circumstances would include someone who has been assessed more than $500 in overdraft fees in one week (the banker has the option to refund anything above $500 but not dip below it, while ''keeping in mind the best interests of both the customer and the bank's shareholders"), a customer who has overdrawn his account by less than $3, or some instances in which the bank is holding a customer's deposit.
A Bank of America spokeswoman, Alex Liftman, said the $19 fee the bank assesses the vast majority of customers who overdraw their accounts -- those who overdraw only once per year -- is among the lowest in the industry. She also said the bank encourages customers to actively manage their accounts and purchase overdraft protection to avoid such fees.
Overdraft fees are an important source of revenue for banks. In the last two years, the region's two dominant banks, Bank of America and Citizens Financial Group, have introduced ''free checking" accounts, joining other banks that already offered free accounts. But free checking is not always free for customers: The banks profit from those accounts by charging customers overdraft fees, bank consultants say, while they also earn money on debit cards.
Suzanne Moot, a banking consultant with M&M Associates in Milton, said about a third of banks' revenue on free checking accounts comes from such insufficient-funds fees.
Another consulting firm, John M. Floyd & Associates, estimates that the average customer overdraws 3.4 times per year. Its executive vice president, Steve Swanston, said insufficient-funds fees can benefit customers: Banks pay their obligations even when they do not have funds to cover it, then assess a fee, helping customers avoid bad marks on their credit, late fees, and other problems.
Each bank sets its own policies on when to refund overdraft fees, Moot said. If they crack down too harshly, she said, they could alienate some customers.
''They'll make some customers very angry they don't want to make angry," she said.
''From a banker's perspective, that's the trade-off. You don't want to lose a customer over a relatively small dollar amount."
Sasha Talcott can be reached at stalcott@globe.com.
© Copyright 2006 Globe Newspaper Company
