Have you ever found yourself at the local Wal-Mart doing some end of the month shopping, and when you go to pay for it with your debit card you realize that you have reached your limit? Well, if you have overdraft protection on your checking account then chances are you will not have noticed this moment until your bank statement comes in the mail a few days later. Overdraft protection is a small convenience that most banks provide as a standard service with new checking accounts. In many instances, this service is not even mentioned. It appears as part of the fine print somewhere in the middle of the packet of brochures you are given with your new account. It would seem that such a helpful service would receive more prominence as a selling point of a new account, but it doesn't, not now anyway. At first when banks first thought of the idea, yes it was marketed as part of being an intelligent cost conscious consumer. But nowadays it is a given that people are going to spend above their means and will need a bail out loan, so to speak.
The sad fact is that a huge percentage of the overdraft fees banks charge come from those attached to debit cards. Debit cards are huge cash cows for banks because people use their debit cards as they would cash and because the cards balance is not provided to the consumer at the time of a purchase then most consumers keep less track of the balance of their debit cards than they would their checking accounts if they had used their check books. There is in other words a built in mechanics in the debit card system to create a built in deficit. For banks this means a boon in new revenue but for consumers it means literally living outside their means. Well recently the Obama administration approved a law that will soon go into effect that will ensure bank customers are fully aware of any and all overdraft charges. Given the extent of this type of business it should surprise no one that most banks will seek ways to come out ahead on this one.
Poised to loose a lot of its revenue The Bank of America has decided to drop all overdraft fees on its debit card accounts by this summer. Although this initially will lead to less money in the long run it will set a new precedence for lenders to follow. You can look at it like this. Cutting these fee's will be a preemptive measure that will draw customers back in who have come to depend on the overdraft feature on their debit card.