Overdrawing Accounts OK by BoA, as Long as You Text Them

Bank of America (NYSE:BAC) announced plans this week to test-drive a new program early next year which would allow consumers to reverse a declined transaction – and accept a $35 overdraft fee -- by text.

Under the overdraft-text program, which consumers will have to voluntarily sign up for in order to participate, the bank will immediately text consumers after a declined transaction asking them if they want the purchase to go through – and accept the overdraft charge. But they won’t be able to continue to spend and overdraw their accounts even further, as the text approval is only good for that particular transaction. If a consumer replaces the money in their account by day's end, the fee will be waived, according to the bank’s announcement.

Bank of America eliminated some overdraft fees in the summer of 2010, by rejecting all debit card purchases to be completed if a customer doesn't have enough money in their account – with no options to sign in for the opposite. But those who try to withdraw more than their balance from the ATM still have to agree to pay a $35 overdraft fee before getting their cash.

In April, the Pew Center released a study, "Hidden Risks: The Case for Safe and Transparent Checking Accounts," which found that overdraft fees are disproportionate to the size of the average overdraft amount (ie even if you go over by a few dollars, you’ll pay a fee upwards of $30) and are not saving consumers, but instead are costing them billions annually. The charges were estimated to cost Americans $38.5 billion this year, an increase of $18.6 billion in the past decade.

According to the Pew study, customers can't easily access account terms and conditions and account holders are not provided information in full about the costs of overdraft options. The Pew study was based on an analysis of more than 250 checking accounts offered by the country's 10 largest banks.

Today the median overdraft penalty fee is $35, according to Pew, up from $27 in 2007. Under a Federal Reserve rule from last year, banks can only enroll consumers in overdraft protection programs if they sign on the dotted line and opt-in. Since the rule became law, if a consumer does not choose to participate in the program, the banks cannot automatically sign them up.