Bank of America Corp. plans to announce Wednesday that it is eliminating $35 overdraft fees on debit card purchases as the bank tries to stay ahead of a sweeping round of regulations.
The move means that any customer who attempts a purchase with insufficient funds will be denied at the point of sale. That will affect people who currently get nicked on small, everyday transactions such as coffee, groceries or subway passes without knowing their account is temporarily running a deficit.
The new policy will begin for new customers on June 19 and in August for existing debit card holders. Citigroup Inc. already has a similar policy in place.
Overdraft fees are an important source of revenue for banking institutions, which earned $36.7 billion in 2008 for service charges on deposits, even as U.S. banks got massive infusions of taxpayer-funded aid.
According to a report by Moebs Services, a research firm in Lake Bluff, Ill., the banking industry was on pace to collect $38.5 billion in such fees for 2009.
The change is likely to cost Bank of America, based in Charlotte, N.C., millions of dollars in revenue. Company spokeswoman Anne Pace declined to provide a specific figure.
Bank of America now has 37 million debit card customers who generate 60% of all overdrafts for the bank, she said.
Last year, Bank of America said it would abandon a plan to raise overdraft fees and offered other concessions, like lower daily limits on fees and assistance for unemployed customers, costing the bank an estimated $200 million per quarter.
New federal rules on overdraft fees that take effect later this year will permit banks to charge overdraft fees on such transactions if a customer opts into the program. But some banks are struggling to upgrade their computer systems to adapt to different customer preferences.
At Bank of America, no system change is required for merchants to ask the bank for purchase authorizations, a spokeswoman said. Bank of America's policy change "goes above and beyond" the new federal requirements, she said.
Once the new policy takes effect, Bank of America debit card holders still could get cash from an automated-teller machine if they are spurned at the point of sale. In such cases, though, the $35 fee would be imposed, with the customer notified of the withdrawal while standing at the ATM machine.