The second largest bank in the US is giving their customers the choice of paying for a previously free service. The Bank of America are planning to charge their customers $4.95 a month for not letting them go overdrawn. Sounds great right, especially when you consider that overdraft fees for each unpaid item cost the customer $35.
This service is tied up with a new kind of account called the SafeBalance account and the Bank of America launched it last Thursday, however, industry experts were keen to point out that the $4.95 was pretty much a moot point, as no one has to go overdrawn anymore, because the banks simply do not authorize payments if there is not enough funds in a customer’s account.
The new banking rules were brought in by the Federal Reserve in 2010 to stop the banks charging exorbitant overdraft fees, when a customer went a couple of dollars over their limit, and the banks were than able to charge the standard $35.
There are now new rules laid down by the Federal Reserve which means that the customer must actually opt in for what is called “overdraft protection,” (this is where you are charged $35 for that $2 coffee with an overdrawn account). However, if you don’t opt in and you don’t have enough money in your account your card will be declined and you won’t be able to make a purchase. This is a free system that costs nothing to the bank customer at present, so why has the Bank of America suddenly decided that charging people for this ‘service’ is a good idea, and do they think that customers will be prepared to pay for it?
The Huffington Post emailed Betty Riess, a spokesperson from Bank of America, who commented: “The SafeBalance account was designed for a small segment of customers who want added protection against all overdrafts. The key difference between SafeBalance Banking and our more traditional checking accounts is that there are no checks and no overdrafts.”
So the difference with the SafeBalance account is that even though the Federal Reserve have safe guarded card payments against overdraft fees, any automatic debits or payments by check are not. So for instance, any utility bills that are paid automatically out of your account could still incur charges if they are paid and you do not have enough money in your account.
With the Bank of America’s SafeBalance card you would be protected from all of these types of payments, however, industry experts are still dubious as to the justification of the $4.95 charge, stating that lower income customer are less likely to have checking accounts, and are more likely to pay their utility bills by card or cash. If there was any confusion about whether these types of customers may be charged by using these types of payments they could simply withdraw the checking facilities and stop using automatic payments.
However, as with all new legislation, it appears that the very nature of the terms of the new rules has further increased people’s confusion regarding what the Federal Reserve were trying to put in place in the first instance.
A survey was conducted in 2011 by the Center for Responsible Lending, which showed that nearly two-thirds of people who opted for overdraft protection under the new rules did so in order to avoid paying overdraft fees, but in fact charging overdraft fees is precisely what “overdraft protection” does.
It is this confusion that is probably why it is the poorest of Americans that are paying the most in overdraft fees every year, despite attempts from the Federal Reserve to regulate the banks from charging their most vulnerable customers.
Source: Huffington Post – US