By Suzanne Kapner

Bank of America has said it will eliminate overdraft fees for debit card customers in a move designed to quell consumer frustration and keep the bank a step ahead of new regulations that restrict such charges.

The $35 fee has drawn widespread criticism from consumer groups and legislators. Federal Reserve rules that take effect this summer require banks to obtain a customer’s permission before enrolling them in overdraft programmes.

BofA plans to go a step further by denying transactions at the point of purchase if a customer’s checking account is running a deficit. The new policy will take effect in June for new customers and August for existing ones.

Customers can still obtain overdraft protection by linking their checking account to a savings account or credit card, in some cases free of charge.

At the most, customers would have to pay a one-day $10 fee for the privilege of overdrawing their account, far less than what they had been charged before. ATM overdrafts are still subject to the $35 fee but BofA said it gives customers clear warning before they are charged.

Consumers who have been hurt the most by these fees are those who make small, everyday purchases with their debit card and do not realise their accounts are temporarily overdrawn. Such shoppers can easily incur multiple fees in a single day that far outweigh the amount of their purchases.

Analysts estimate that BofA has about 37m debit card customers and that roughly two-thirds of the customers who overdraw their accounts do so with these everyday transactions.

BofA would not say how much the changes would cost in terms of lost revenue.

In September, the bank backed away from a plan to raise overdraft fees and also lowered the cap on the number of times a customer could be charged in a given day to four from 10. Those moves cost BofA about $160m in the fourth quarter alone.

Banks and credit card issuers have come under fire for questionable practices that critics say contributed to a predilection by Americans to spend more than they earned, fuelling the credit bubble. Various pieces of legislation are attempting to restrict these practices.

BofA said the change in policy was motivated not only by the new Federal Reserve rules, but also by a shift to a more frugal mindset on the part of customers. “They told us, ‘Do not let me spend money that I don’t have,” the bank said.

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