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Bank of America – Overdraft Policies and Practices (2019)

Bank of America – Overdraft Policies and Practices (2019)

Outcome: Omitted by SEC

WHEREAS: Bank of America charges a $35 fee when it pays a customer’s check, ATM withdrawal, or certain other electronic transactions, even though the customer’s account lacks sufficient funds to cover the charges (if the customer opts-in). In 2017, this resulted in Bank of America collecting over $1.6 billion in overdraft/NSF fees. This represented over 2.2% of its total income and 34% of its non-interest income.

According to a 2018 Center for Responsible Lending report, FDIC data shows the largest American banks collected $11.45 billion in overdraft/NSF fees in 2017. Their studies found:

• account holders incurring large numbers of overdraft fees are more often low-income, single, non-white, and renters;
• customers often pay more in overdraft fees than the overage amount;
• banks collect a high volume of overdraft fees each year from college-age customers and older Americans who rely heavily on Social Security Income; and
• many consumers who opted into fee-based overdraft coverage for debit card transactions after the 2010 change to the Federal Reserve’s Regulation E did so as a result of aggressive or deceptive marketing.

The CFPB found the majority of customers that frequently overdraft are more financially vulnerable than those who are not. And Pew research has shown approximate 70% of heavy overdrafters earn less than $50,000/year.

Bank of America’s flat $35 overdraft/NSF fee does not appear to bear any relationship to the cost or risk of covering an overdraft, which casts doubt on its reasons for imposing the fee and raises reputational risks. This also means that almost regardless of the size of the overdraft, the fee is the same – e.g. the cost to the customer is the same whether she is $5 over her balance or $500 over her balance. This is concerning since a 2014 CFPB study found customers were paying a median overdraft fee of $34 for debit card payments of $24 or less. The Washington Post has reported that this is the equivalent of a loan with a 17,000 percent annual rate.

This issue has presented the company with litigation risk in the last few years, including a $22 million and a $66 million settlement regarding overdraft practices.

Citibank does not charge overdraft fees for point of sale or ATM withdrawals.

In response to the potential and actual harm to vulnerable customers, U.S. Senator Cory Booker has introduced the Stop Overdraft Profiteering Act, which would prohibit banks from imposing overdraft fees on debit card or ATM transactions. Furthermore, it would limit the number of overdraft fees that could be levied on check-based transactions.

Resolved: Shareholders request the Board complete a report to shareholders (prepared at reasonable cost, omitting proprietary and confidential information, and within a reasonable time) evaluating overdraft policies and practices and the impacts they have on customers.

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