Chase, Bank of America differ on overdraft strategy

Chase, Bank of America differ on overdraft strategy
Chicago's 2 biggest banks take different approaches to new rule requiring approval to process transactions that exceed account balances
By Becky Yerak
Copyright © 2010, Chicago Tribune
5:09 p.m. CDT, June 22, 2010
http://www.chicagotribune.com/business/ct-biz-0623-notebook-financial-20100622,0,564523.story


Chicago's two biggest banks have diverging strategies on how to treat customers who overdraw their accounts using ATM and debit cards.

Starting July 1 for new customers and Aug. 15 for existing ones, banks will need a consumer's approval to process everyday debit and ATM card transactions that exceed the account balance. In the past, banks often have covered overdrafts but socked the account holder with a $20 or $30 fee.

Market share leader Chase has been sending letters to customers warning them that, if they want overdraft coverage for ATM or debit cards, they must tell the bank.

"We want to give customers a choice," spokeswoman Christine Holevas said.

If the consumer doesn't sign up for debit card overdraft coverage and later doesn't have enough money to, say, cover the bill at a restaurant, that debit card transaction will be denied.

If they opt into the debit overdraft program, Chase may cover a transaction when the account has insufficient funds, charging the consumer a $34 fee. The amount of overdraft coverage will vary depending on the account's history, including the deposit and spending patterns.

Consumers who opt into the program but never use it will pay no fee. And Chase customers will not be charged a fee if they're overdrawn by less than $5.

The debit overdraft coverage doesn't apply to some payment methods, including checks, online bill payments or recurring debit transactions, such as gym memberships.

"Those transactions can still overdraw the account and result in non-sufficient fund and overdraft fees, no matter a customer's decision on debit card overdraft coverage," Holevas said. "The decision applies to everyday consumer debit card transactions."

Meanwhile, Bank of America has ended its overdraft program for debit and ATM transactions.

"We're responding to the overwhelming majority of customers who say, 'Don't let me spend money I don't have,'" BofA spokeswoman Diane Wagner said.

Banks are making the changes in their practices in light of new Federal Reserve rules that give debit and ATM card users additional options regarding overdrafts.

Tom Feltner, vice president of the Woodstock Institute, a nonprofit group that looks at fair-lending practices, said forcing banks to seek customers' approval for overdraft programs is a good first step.

But "we support Bank of America's decision to eliminate overdraft on debit card transactions," Feltner said. "Debit transactions can happen quickly and are more likely to trigger spiraling overdraft fees."

Greg McBride, senior financial analyst for Web site Bankrate.com, said 75 percent of consumers don't overdraw their accounts with ATM or debit cards and, therefore, probably won't want to opt in; if their debit card is denied, they probably have access to cash or credit.

An additional 10 percent to 15 percent occasionally overdraw but still have options.

The rest are the least likely to have other payment options. It's these consumers who may want debit card overdraft protection, or they should be more vigilant about tracking their balances, he said.

"In the case of a hot dog and a Slurpee, no one wants to pay $30 if they're overdrawn," McBride said. "But what if you're 300 miles from home and your car breaks down and you have no other options?"

The best defense, he said, is to link a checking and a savings account so money can be moved from one account into another for a smaller fee than the overdraft.

byerak@tribune.com