Bank of America to raise fees

Bank of America is preparing to increase the fees it charges when customers overdraw an account or bounce a check. The move comes at a time when banks are facing earnings pressure as interest rates rise.

An internal Bank of America memo obtained by The Boston Globe said the tiered fee structure for overdrafts and bounced checks will change June 9, with the fee for two to four occurrences over a 12-month period rising from $31 to $33 and the fee for occurrences beyond four rising from $34 to $35. The fee for the first day's occurrence is remaining at $19. An occurrence is defined as a day with at least one overdraft or returned item.

''We periodically review our fees," said Bank of America spokeswoman Alex Liftman. ''The $19 fee that did not change is the lowest in the industry, and the other fees are certainly competitive."

Liftman declined to say how much the bank collects in overdraft and returned item fees, or how much revenue the changes would generate. She said the ''vast majority" of the bank's customers never overdraw their accounts.

Industry analysts say banks are under pressure because they are making less profit lending money out since short-term interest rates have risen so sharply in recent months.

Banks thrive when the gap is wide between short- and long-term interest rates because they can borrow at the low rate, make loans at a higher rate, and pocket some of the difference as profit.

Credit Sights, a New York credit research firm, predicted in a January report that banking fees would be a high priority for most financial institutions in 2006. ''We think banks could look to fee income as a source of profit growth as the flat yield curve should cause spreads to remain under pressure," the report said.

Greg McBride, a senior analyst with Bankrate.com, said he suspects that overdraft fees are big revenue generators for most banks, although he said banks don't break out specific fee income. He said overdraft and bounced check fees have been rising quickly in recent years. McBride said the average bounced check fee was $26.90 last fall.

McBride said Bank of America's tiered-fee approach has become fairly standard in the industry. He said it gives a break to those customers who infrequently overdraw their account or bounce a check, but severely penalizes those who do it more frequently. He said credit card companies take the same approach with customers who pay bills late or exceed their credit limits.

In the Monday e-mail to its employees, Bank of America outlined ways to deal with customer questions about the increases. ''If you value my business, why are you changing your fees?" said one of the customer questions posed in the memo.

''We do value your business," said the prepared answer. ''Like any company, from time to time we adjust our prices in relation to the service provided. It's possible that we can sit down and assess your account usage to make sure you're in the best account. I also can tell you about our overdraft protection plans."

The memo points out that customer service representatives can waive the fees only when the customer's ending account balance is overdrawn by $3 or less. Some fees could also be waived if it's a first-time situation for the customer. For example, a customer with three overdraft items on the same day would normally be charged three $19 fees, or $57, but that charge could be reduced to $19 if the customer requested a reduction, the memo said.

Bank of America moved to the tiered fee structure here in New England last summer after completing the acquisition of Fleet Financial Corp. Fleet had previously charged a flat fee of $25 for overdrafts and bounced checks.

Deirdre Cummings, consumer program director at the Massachusetts Public Interest Research Group, said Bank of America's overdraft fees are very high. ''Unfortunately, it's going to hit the people who can least afford it the hardest," she said.

Bruce Mohl can be reached at mohl@globe.com.