Leading banks in the US and UK
have joined their Australian counterparts in reducing fees for
retail customers (see Australian price
war story, RBI 617), the latest sign that the
repercussions of the financial crisis are precipitating a
sea-change in banking practices in Anglo-Saxon
economies.
In an early response to increasingly
forthright political pressure on overdraft fees in the US, Bank of
America (BofA), JPMorgan Chase, Wells Fargo and US Bank have become
the first major banks to announce cuts to penalty charges.
Go deeper with GlobalData
In the UK, banks are similarly cutting
unauthorised overdraft charges ahead of the resumption of a
landmark court case. The Office of Fair Trading’s test case into
fee charging is being contested by all major financial institutions
in the UK and is due to be debated in parliament after the summer
recess ends on 12 October.
But on 21 September Halifax, the
second-largest retail banking component of Lloyds Banking Group,
announced that it would cut overdraft charges for the “vast
majority of its customers” from December onwards.
A system which currently levies an
unauthorised overdraft fee of £28 ($46) as well as paid and unpaid
item fees of £35, will drop to a flat rate of £5 per day.
Similarly, Royal Bank of Scotland announced on 7 September that it
was halving fees for exceeding overdrafts to £15, with charges for
‘bounced’ cheques falling from £38 to £5.
A comparable trend has already been seen in
Australia over the summer, with August seeing National Australia
Bank, Westpac and Commonwealth Bank of Australia announce changes
to their fee structures as well as the launch of an aggressive new
campaign from ING Direct centred around low or no charging
practices.
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By GlobalDataUS on the verge of change
However, it is the US retail banking
market that is seemingly on the verge of undergoing the most
significant change as it adapts to both changing consumer sentiment
and an increasingly populist tone within a newly
Democrat-controlled US Congress, which has already introduced the
Credit Card Accountability, Responsibility and Disclosure Act so
far this year – measures JPMorgan has said will cost its card unit
up to $700 million in 2010.
Both the House and the Senate are preparing
bills which would require consumers to opt-in to overdraft schemes
rather than being automatically enrolled by financial
institutions.
A study issued by the Centre for Responsible
Lending in March found that 25 percent of consumers had overdrawn
their bank account in the previous 12 months, with 83 percent of
those surveyed wanting to opt-in to overdraft programmes for debit
cards and ATMs.
Beginning on 19 October, BofA will remove
overdraft item charges when a customer’s account is overdrawn by
less than $10 for one day, as well as limiting overdraft charge
fees to no more than four items per day. The bank will also
“improve the process” for customers looking to opt out of
overdrafts.
Other changes, which will not be implemented
until June 2010, include an annual limit on the number of times a
customer can go overdrawn at the point of sale, and limits to
overdraft options and fees for customers who reach annual
limits.
Chase’s revamp of its overdraft policies will
be rolled out in the first quarter of 2010 and will eliminate
overdrafts for debit cards unless a customer specifically opts in
to such services, as well as eliminating overdraft fees for
customers whose accounts are $5 or less overdrawn and reducing the
maximum number of overdraft fees from six to three per day.
