Bank of America again raises fees on overdrafts

For the third time in 20 months, Bank of America Corp. has increased the fees it charges customers who overdraw accounts or bounce checks.

The fee for each overdraft or returned item during the first day an account is overdrawn was increased from $19 to $20, and the fee for each overdraft or returned item on subsequent days was set at $35.

The Feb. 16 change eliminated the middle tier in the bank's overdraft fee structure. Previously, the bank had assessed a $33 fee per overdraft or returned item for the second, third and fourth days an account was in imbalance, and charged a $35 fee for each additional day.

Under Bank of America's policy, the maximum number of overdraft fees that can be charged per day is five.

Ernesto Anguilla , a bank spokesman, declined to say how much money the bank collects in overdraft or bounced check fees or how much revenue the fee increases would add to the total. He said the $20 initial charge for an overdraft is one of the lowest in the industry.

"We do believe we price competitively," Anguilla said.

Industry analysts say revenue from overdraft fees is substantial. Suzanne Moot , a banking consultant with M&M Associates in Milton, said banks on average collect two overdraft charges annually on each customer checking account. But Moot added that a relatively small number of customers account for most of the overdraft charges.

Greg McBride , a senior analyst with Bankrate.com, said banks have been raising overdraft fees sharply because they offer a steady stream of income that provides financial stability when interest rates fluctuate. He said that because most customers aren't assessed the fees, they don't tend to generate many complaints.

"Fee income is extremely important to bank profitability," he said.

A Bankrate survey of bank fees last fall found the average overdraft fee had risen to a record $27.40, up 36 cents from where it was in a similar survey in the spring of 2006.

Locally, Sovereign Bancorp Inc. charges a flat fee of $30 for insufficient funds in an account, while Citizens Financial Group uses a three-tier overdraft fee -- $17 for the first occurrence, $35 for the second and third, and $38 for subsequent occurrences. A Citizens spokesman said the lowest tier charge was cut from $19 to $17 last September.

Overdraft fees are often triggered when a customer makes a series of transactions -- usually to pay bills -- that don't clear for a day or two. Under that scenario, an account that is overdrawn can appear to still have funds in it, and the customer continues to make purchases. Once the bills clear, the account is then overdrawn.

Bank of America officials said they encourage customers to monitor their checking account balance, either online, by phone, or through e-mail alerts whenever the balance falls below a specified level. The bank also offers overdraft protection that links a savings account or credit card to the customer's checking account.

"We do work hard making it easier for customers to make sure their accounts stay in a surplus state," said Diane Wagner , a Bank of America spokeswoman.

A Bank of America employee, who asked not to be identified because he was not authorized to speak officially about fees, said bank software regulates whether an employee can erase an overdraft charge and grant a rebate to a customer who complains about the charge.

The overdraft fee at Bank of America has inched up steadily since the company purchased Fleet Financial Corp. in April 2004 and imposed its own tiered overdraft fee structure in June 2005.

Fleet charged a flat fee of $25 for each overdraft and a $22 fee for each returned check. Bank of America replaced Fleet's fee schedule with its three-tier system, initially charging $19 for each overdraft or returned item during the first day an account is overdrawn, $31 per item on the second through fourth days, and $34 per item on subsequent days. The maximum number of fees per day was five.

The bank raised the second and third tier fees last June, and this month raised the initial fee and eliminated the second tier.

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