Faced with proposed reforms from both Congress and the Federal Reverse that would force banks to rehaul punitive overdraft policies, Bank of America and JPMorgan Chase have announced they are voluntarily changing their policies to make them more consumer-friendly. The policies, common at many banks, typically trigger multiple fees for consumers who make debit card or check purchases that exceed their account balance.

As we reported previously, customers typically are automatically enrolled in these high-cost overdraft protection programs whether they realize it or not.  When translated into Annual Percentage Rate interest terms, the cost of fees for repaying a $100 overdraft after seven days can be as high as 3,640 percent at Bank of America, so it’s no wonder such fees were expected to generate more than $30 billion for banks this year

As of Oct. 19, Bank of America will give customers the ability to opt out of overdraft protection so that charges that would exceed their account balance are no longer put through.  Also, the bank no longer will charge overdraft fees when a customer’s account is overdrawn by an amount less than $10 for a single day and it will limit the number of overdraft fees that can be imposed per day to four, down from 10 currently.  Additional changes will kick in starting in June 2010.  More details are available here.

Starting in the first quarter of 2010, Chase will make overdraft protection opt-in rather than automatic for all customers.  It will as eliminate overdraft fees when accounts are overdrawn by $5 or less and cap the number of such fees at three per day (down from six now).  The bank also will begin posting transactions to a consumer’s account in chronological order, rather than processing the highest charges first as it does now, a practice, which can trigger a greater number of overdrafts and thus more penalty fee income for the bank.  In its announcement, Chase says it’s making the changes to reflect “tremendous growth in our customers’ debit-card usage.” 

It remains to be seen whether other banks will follow suit and whether these modest steps in the right direction will be enough to ward off mandatory and perhaps stronger regulatory or legislative reforms.–Andrea Rock