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September 24, 2009 1:17 am
Wells Fargo became the latest bank to announce a shift in its policy towards overdraft fees on Wednesday, saying it would allow consumers to “opt out” of a programme that hits them with charges of more than $30 when they go overdrawn on their accounts.
The announcement comes a day after JPMorgan Chase and Bank of America announced similar initiatives, and in the wake of pressure on banks by Congress to ease up on the fees tacked on to depositors’ bills.
The overdraft shuffle also comes as leading Democrats in the House are poised to launch a plan on Thursday to hasten the implementation of a law forcing credit card companies to limit fees and charges and give greater notice of interest rate increases. Carolyn Maloney, chairman of the Joint Economic Committee, and Barney Frank, chairman of the House financial services committee, are introducing new legislation so that the rules would come into place on December 1 instead of February next year.
Both politicians are concerned that some credit companies appear to be taking advantage of the period before the law comes into force to push up charges.
However, there is scepticism in the Senate that any changes to the agreed timetable can be made as the initial legislation was a hard-fought fight that saw Tim Johnson, a senior Democrat, side with Republicans to vote against the bill.
As for overdrafts, Wells Fargo, BofA and Chase have now promised relief to consumers who have complained after being charged for overdrafts.
There is one significant difference in the plans: Chase will automatically remove all its customers from the overdraft service, and allow customers who want that protection to opt in. BofA and Wells Fargo will leave it to customers to opt out of the controversial overdraft service.
“We believe we should give every customer the option of participating in the plan or not,” says Charlie Scharf, head of retail financial services at Chase.
US banks stand to collect a record $38.5bn in fees for customer overdrafts this year, with the bulk of the revenue coming from the most financially stretched consumers, according to research from Moebs Services.
The median bank overdraft fee has this year risen from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.
The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress.
Consumer groups and employee unions were cynical about the banks’ moves to reduce fees.
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