Are Overdraft Fees On Their Way Out?

The nation’s largest bank, and biggest issuer of debit cards, is finally doing the right thing.

Bank of America will stop letting customers overdraw their checking accounts so it can zing them with overdraft fees.

Starting this summer, it will decline purchases that overdraw a customer’s checking account and inform them that they’ll have to pay an overdraft fee before allowing them to withdraw more money than they have in their account from an ATM.

That’s pretty much the way things were before banks realized they could make a fortune by penalizing customers who unwittingly overspend their accounts.

Overdraft and insufficient fund fees netted banks more than $38 billion in 2009.

Bank of America tried to stem growing public anger over the hidden charges last fall, when it agreed not to charge more than four overdraft fees a day, and waive any fees on accounts that were overdrawn by $10 or less.

But the Federal Reserve still stepped in and told the nation’s commercial banks that they could no longer automatically enroll customers in “overdraft protection.”

New customers had to be given the choice as of July 1. Existing customers must either sign up or be taken off overdraft protection by Aug. 15.

Some banks (Chase we’re talking to you) have already launched high-pressure marketing campaigns in an effort to enroll as many customers as they can.

But that effort flies in the face of every consumer survey we’ve seen.

When given a clear choice between paying overdraft fees or having a transaction refused, the huge majority of Americans say they want the purchase or cash withdrawal turned down.

Who wants to overdraw their account for a $5 sandwich and have a $35 overdraft fee tacked on by the bank?

While Bank of America will still allow its checking account customers to sign up for overdraft protection, it acknowledged the fact that it expects very few to do so.

“What our customers told us is that, if I don’t have the money, I don’t want to overdraft” with debit cards, Susan Faulkner, head of the bank’s deposits and card products business, told USA Today.

“We don’t think our customers would come in and opt in” to overdrafts and their associated fees.

With Citigroup already pursuing a similar policy, we can only hope other banks will get the message and follow suit.

It’s the least the financial industry can do after all of the abuse and shabby treatment their customers have endured over the past couple of years.