Bank of America has become the latest financial institution to limit its reliance on overdraft fees at a time when banks face stiff competition from free online services and regulators are hinting at a possible crackdown.

The Charlotte, North Carolina-based bank announced plans Tuesday to overhaul its overdraft policies. In February, it will eliminate insufficient funds fees and make it impossible to overdraw an account at an ATM. In May, it will reduce its overdraft fees — which occur when an account balance goes below zero — from $35 to $10.

Industry leaders say it’s part of a broader shift away from the controversial fees — which are disproportionately absorbed by already vulnerable consumers — responsible for nearly $15.5 billion in revenue for the nation’s largest banks in 2019. Last month, Capital One announced it would scrap overdraft fees entirely.

“Over the last decade, we have made significant changes to our overdraft services and solutions, reducing clients’ reliance on overdraft, and providing resources to help clients manage their deposit accounts and overall finances responsibly,” Holly O’Neill, president of retail banking at Bank of America, said in a statement.

Banks face stiff competition with the rise of free online and mobile banking services, in some cases forcing them to innovate in consumers’ favor. This also comes as Rohit Chopra, director of the Consumer Financial Protection Bureau, has been critical of what he called “exploitative junk fees.”

Several banks are limiting the fees voluntarily. Last year, PNC Bank announced a service called “low-cash mode,” which includes a 24-hour grace period to cure overdraft penalties and see them waived. Capital One’s announced change takes effect this year.


Bank of America says the changes are part of a yearslong effort that brings its overdraft fee revenue 97% below 2009 levels. In 2010, the bank stopped charging overdraft fees tied to debit cards. In 2014 it launched a no-fee account option called SafeBalance. It also has built-in services and alerts designed to help customers track their balances and avoid running out of money.

Though consumer advocates applauded the recent moves, they chided the industry for not acting sooner.

“Banks are demonstrating that they don’t need to harvest billions from consumers to provide overdraft services, which is nice enough,” said Carter Dougherty, communications director with Americans for Financial Reform. “That said, it has come after years of predatory fees and closed accounts, which is less than nice.”

To some, the best possible system would be one that allows overdraft but doesn’t saddle customers with penalties.

Acting comptroller of the currency Michael Hsu said at a recent banking industry conference that the ability to overdraft an account could be beneficial to low-income individuals, as long as banks are competing with one another to provide the most customer-friendly policies.

“A race to the top for the most pro-consumer overdraft program could help make it less expensive to be poor and demonstrate to consumers that the banking system has their backs,” Hsu said.