A headline in today’s New York Times caught my attention—Chase and Bank of America Revise Overdraft Fee Policies. It reminded me of the only unpleasant experience I had with the Bank of America, when I was charged an overdraft fee of $10 for overdrawing as little as $2, without ever being aware of such a fee until I received my bill. After going through the news article, I realized that I was far from the only person who had this kind of experience—in fact, tens of thousands people did, whose uninformed actions have generated billions of dollars in revenue for their banks. “Consumers who overdraw often do not realize that overdraft coverage is automatic and that the bank will not simply cut them off when their balance hits zero. Many banks then refuse to turn off the coverage, even when a consumer calls to request a change.” As consumer outcry grows, along with looming pressures from lawmakers, Chase and Bank of America opt to change their policies on overdraft fee before any relevant legislation go into effect. Revisions will take place along the following lines:
1) Raise the threshold overdraft eligible for overdraft fees (Chase: $5, BofA: $10).
2) Cap the number of overdraft fees that can be charged in a single day (Chase: 3 times max, BofA: 4 times max)
3) Give customers the choice to sign off overdraft programs. (Once they’re signed off, the bank will cut them off when their debit card purchases or ATM withdrawals go beyond the money in their checking account, and will no longer cover bounced checks.)
I think both the network theory we talked about last week and the literature on competition and innovation in this week's reading are applicable in this case.
Bank of America and Chase are two of the biggest banks in the United States.
In a network consisting of all commercials banks, current customers, potential customers and lawmakers, what role do these two banks play? Since overdraft program works as a substaintial revenue-generating tool for either institution, why do they choose to take the initiative to alter it? Why do they act at the same time? What impact will such move exert on their competitors, rivals and the banking industry as a whole? These are interesting questions to think about.