On Wednesday, Wells Fargo (WFC) became the latest large financial institution to announce a reshuffle in its policy towards overdraft fees.
The bank will eliminate overdraft fees for Wells and Wachovia customers when they overdraw their accounts by $5 or less. Wells will not charge customers more than four overdraft fees per day. In addition, customers will be able to opt out of overdraft coverage. Henceforth, customers can specify that they don’t want their transactions authorized into overdraft if funds aren’t available to cover the transaction.
Wells Fargo is following the footsteps of other large banks, Bank of America Corporation (BAC) and JP Morgan Chase & Co. (JPM). While JP Morgan has decided to 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 overdraft facility.
The nation’s largest banks have been under tremendous political pressure to restrain costly fees and practices. The overdraft shift also comes as leading Democrats 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 longer 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.
US banks have already collected a record $38.5 billion in fees for customer overdrafts year-to-date, with the bulk of the revenue coming from the most financially stretched consumers. The median bank overdraft fee has this year risen from $25 to $26 being 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.
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