In a move that could bring an end to the $40 cup of coffee, Bank of America said on Tuesday that it was doing away with overdraft fees on purchases made with debit cards, a decision that could cost the bank tens of millions a year in revenue and put pressure on other banks to do the same.
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Banks are bracing for a new federal rule that will require them to get permission from account holders before providing overdraft services for debit purchases and A.T.M. withdrawals. That change was already expected to wipe out billions of dollars in overdraft revenue for the banks.“What our customers kept telling me is ‘just don’t let me spend money that I don’t have,’ ” said Susan Faulkner, the bank’s deposit and card product executive, who said the overdraft changes were part of a broader push to build trust among its customers. “We wanted to help them avoid those unexpected overdraft fees.”
In other words, Bank of America has no choice in the matter, so they decided they’d make the change slightly early and try to get a PR boost from it. Would the bank have made this change on its own, without impending government regulations? It’s unlikely, to say the least.
I find it incredible that it took government intervention to get the banks to stop letting people spend money they don’t have. The whole concept of the debit card is that it’s not like a credit card — it takes money directly from your checking account, meaning if there’s no money there, you shouldn’t be able to spend it. But for nearly two decades, banks have made a fortune off of overdraft protection.
Now, I can hear some commenters already, saying that it’s your own fault if you try to spend money you don’t have. But let’s not forget, all too often the reason there’s no money there in the first place is because the bank holds off on approving a deposit. They’ve had a classic scam going. Let’s suppose you had $20 in your checking account and you made a $200 deposit after the end of business. The next day, you buy a $3 cup of coffee, then 10 minutes later, you get $25 worth of gas, figuring your deposit will clear first. The bank processes the transactions like this:
- First, the largest charge, even though it was the last thing you did. You get an overdraft charge.
- Next, the smaller charge, although you no longer have any money left. You get an overdraft charge.
- Finally, your deposit from the previous day. $68 dollars of your $200 is taken for the “service” of allowing your account to be overdrawn.
At the very least, the new rules will force banks from allowing you to spend money they haven’t cleared yet. At best, hopefully it will remove the incentive for banks to hold on to your deposits, hoping to create overdraft charges.
I find it incredible that it took government intervention to get the banks to stop letting people spend money they don’t have
I agree, and I also find it incredible that it will take voter intervention to stop letting government spend money it doesn’t have.
This is a good bill. Now that the concept of “float” is gone, there is no reason banks should let consumers overdraft. Should banks have to be the consumer’s babysitter? No, but it is the sad fact of life. Debt and deficit spending for everyday purchases are bad, and we’ll all be better off if we hold ourselves to a higher personal finance standard.
Now, let’s hold our government to the exact same standard. What is a good habit for the citizen is probably a good habit for the government. There is no bank to be the watchdog of if the USA has spent its allowance. That is up to we the people.
DantheMan, I assume the voter intervention you are referring to was the election of Obama in 2008 to return this country to the sound fiscal management we had under the last Democratic president, which was cast aside by the Bush administration.
Wrong! Stay tuned and you will see the voter intervention in November to start to reverse the madness.
If that is what the voters in 2008 thought they should be getting, then they ought to be pissed.
The last Democratic President did a GREAT job of fiscal management. He had some tailwinds — a strong economic cycle — but he took full advantage of it nad did a wonderful job.
We could only be so lucky as to have that kind of responsibility again. And to think he did it in a bipartisan way. That guy knew how to be an executive brancher.
Cman, you may see Republican gains in November, but based on the last time the Republicans ran things I don’t know why you would think that would mean an end to deficit spending.
Because the people have spoke. The Republicans know they have to return to fiscal responsibility. Yes, Bush broke the bank. The Republicans have a chance to go back and try (we’ll see if they can actually do it) to return fiscal sanity to America. The Democrats can’t do that because that’s not who they are. The people now understand that the Federal Government must be reduced before it’s too late. The thing that’s hard to understand is why responsible liberals and Democrats (is that on oxymoron?) are allowing this ultra left President to lead all of them off a cliff.
Not all deficit spending is created equal. In times of great national need- say a war or significant economic downturn- being completely unbending about deficit spending is immoderate. Without deficit spending, our nation would have never come to exist in the first place.
I actually agree… there is a reason the federal government is not bound to balance its budget like the states are. You need that lever available to you sometimes.
But do we really need record deficits? Quadruple the largest of anything our country has ever seen before? I mean, we’ve had recessions before, but we’ve never seen anything like this.
Put it this way: Bush was bad. Fiscally irresponsible. And the Obama will accumulate more deficit dollars in two years than Bush did in eight.
Somehow you seen to have been able to vote for Bush II after seeing Bush I grow the deficit and federal debt…Funny that you’re only learning your lesson now. (yes I know you voted for LaRouche or whatever in 2004)