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Bank of America Has It Right on Fees, So Back Off (Update 2)

The company in November settled a class action suit over maximizing overdrafts by processing the largest transactions first on a daily basis, by agreeing to pay $410 million to 13.2 million customers whose debit card overdraft fees had been maximized, when the bank processed larger transactions first.

The latest megahit on fee revenue was the Federal Reserve's clampdown on the interchange fees large banks charge merchants to process debit card purchases, as required by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Durbin Rule reduced Bank of America's fourth-quarter revenue by $400 million.

Here's how the "opt-in" and Durbin rules affected the rest of the "big four" U.S. bank holding companies:
  • JPMorgan Chase's (JPM - Get Report) service charges during the fourth quarter of 2010 -- the first full quarter under the requirement that customers sign up for ATM and debit card overdraft protection in advance -- totaled $1.1 billion, declining 18% from a year earlier. The company said in its annual 10-K filing on Tuesday that "as a result of the Durbin Amendment, its annualized net income may be reduced by approximately $600 million per year."
  • For Wells Fargo (WFC - Get Report), fourth-quarter 2010 service charges on deposit accounts totaled $1.0 billion, declining 27% from a year earlier. The company said during the fourth quarter of 2011, it saw a "$365 million decline in debit interchange fees."
  • For Citigroup (C - Get Report), which has a much smaller U.S. deposit base than the other "big four" club members, fourth-quarter 2010 service charges on deposit accounts actually increased 1% year-over-year, to $158 million. The company said during the fourth quarter of 2011, main subsidiary Citicorp saw a slight year-over-year increase in retail banking revenue, to $4.1 billion.

The next attack on banks service charge revenue is likely just around the corner, with the new and very powerful Consumer Financial Protection Bureau announcing on Feb. 21 that it had "launched an inquiry into checking account overdraft programs to determine how these practices are impacting consumers," with Director Richard Cordray saying that "overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it."

With the "opt-in" rule already in place, with the most peoples' ability to count, it would seem the CFPB might be overreaching here to protect people from themselves, but it doesn't matter. The bureau exists, and it has the power to hammer through more changes and more revenue reductions for banks.

The CFPB on Thursday announced that it "began accepting consumer complaints about bank accounts, including checking accounts, savings accounts, CDs, and related services."

Cordray said "deposit accounts play a critical role in the lives of most Americans, but these products and the laws governing them are complicated," adding that "consumers need someone on their side to keep banks and credit unions accountable."

The bureau said it expected "to respond to complaints within 15 days and seeks to close all complaints within 60 days," and expected to receive complaints about account opening, closing and management; deposits and withdrawals; ATM and debit card usage; payment transfers; and "problems related to low account funds."
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