Bank of America and Wells Fargo Dump Some — Not All — Overdraft Penalties
Bank of America and Wells Fargo have jumped on the bandwagon to eliminate overdraft penalties, though they aren’t riding all of the way yet.
The nation’s No. 2 and 3 banks announced in January that they will give customers a break on high penalties for overdraft fees but unlike other U.S. Banks did in 2021, they aren’t eliminating them completely.
Bank of America is slashing overdraft fees from $35 to $10, making it the first of the Big Four U.S. banks (JPMorgan Chase, BofA, Wells Fargo and Citibank) to lower extremely high overdraft penalties. It also announced intentions to drop bounced check fees. However, Citibank announced in February 2022 that it would eliminate all overdraft fees, returned item fees, and overdraft protection fees by summer.
Wells Fargo is also cutting customer a break and will give customers 24 hours to make good on overdrafts and negative balance accounts before enforcing such fees. It is eliminating its $35 penalty for returned items because of non-sufficient funds but has not budged on the $35 overdraft penalty.
The Bank of America action is scheduled to begin in May. Wells Fargo’s new rules will be in effect by the third quarter of 2022.
Bank of America will also no longer let customers overdraw their accounts from ATMs and is eliminating the $12 penalty when they use overdraft protection that moves money from one account to another to avoid “bouncing a check.”
While check-writing has steadily declined among consumers, automatic debits, such as those often required by utilities, can put an account into negative balance without the customer being aware it happened.
“This is the final step in the journey we’ve been on,’’ Holly O’Neill, president of retail banking at Bank of America, told the Associated Press. “We have good financial solutions for clients without them having to rely on overdraft, but we will still have overdraft if it is needed.”
The changes are not likely coming out of the goodness of their banking hearts. During the pandemic, the banking industry has come under fire from the Consumer Financial Protection Bureau (CFPC) and other regulators for the vast amounts of money it has made from penalty fees, especially from people who had lost jobs.
What’s the best way to avoid overdraft fees? Pick a bank that doesn’t charge them.
In 2019, the U.S Banking industry raked in $15.47 billion from overdraft and insufficient funds charges, according to a December 2021 estimate from the Consumer Finance Protection Bureau.
The Trend to Cut Overdraft Penalties
Capital One, one of the top 10 banks in the U.S., eliminated overdraft fees in December 2021.
Overdrafts can still occur at Capital One, but customers will not be charged for doing so. Customers can also opt into an overdraft protection program at Capital One and will not be charged for the service.
In summer 2021, online banking giant Ally Bank made headlines for eliminating its overdraft fees, and Alliant Credit Union, another major financial institution, followed shortly after.
Capital One, Citibank, Bank of America and Wells Fargo are different from Ally and Alliant, however, because of their sheer size. Their ranking as retail banks according to the Federal Reserve: Bank of America (No. 2); Wells Fargo (No. 3); Citibank (No. 4) and Capital One (No. 6).
The elimination of overdraft fees is just one of the banking trends to keep an eye on in 2022.
Banks and Credit Unions That Don’t Charge Overdraft Fees
These nine financial institutions — banks, credit unions and cash management services — do not levy overdraft fees:
- Citibank (will eliminate over draft fees by summer 2022)
- Alliant Credit Union
- Capital One
- Betterment *
*Fidelity’s account is a cash management account, which is slightly different from a traditional checking account and is built for those using Fidelity to invest. Betterment is also a cash management service which offers investing programs and a mobile-first checking account.
**KeyBank’s overdraft protection for its Hassle-Free Account results in a declined transaction. No fees, but also declined payments for things like rent and utilities can still result in late fees for those struggling with finances.
Kent McDill is a veteran journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder. Reporting from Penny Hoarder contributor Timothy Moore is included in this report.