BofA debuts overdraft alerts via texting

This post comes from Brian O'Connell at partner site MainStreet.

Bank of America has added more twists and turns to its overdraft policy than Baskin-Robbins has flavors of ice cream. This time it's a text message notification system that prompts account holders to opt into overdraft coverage at the point of transaction if the amount would put them in the red.

The bank is reportedly in the early stages of testing this text message application, with the goal of advancing it to its customer base early in 2012, if all goes well. The app marks a significant departure for the bank on its overdraft policies. In the hoopla surrounding the Dodd-Frank financial reform bill and the CARD Act in 2010, both of which put major caps on the fees and penalties that financial institutions could stick to their customers, the bank has gotten ahead thanks to curtailing fees on its own terms.

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Specifically, in March 2010, Bank of America said it would reject debit card purchases from customers at the point of transaction if they didn't have enough cash in their checking account to cover the purchase. On March 10, 2010, the Charlotte, N.C.-based bank said the change would reduce the chances of a customer "inadvertently" overdrawing his or her checking account, and would aid in eliminating onerous overdraft fees, which had climbed as high as $36 per overdraft across the banking industry.

"Our customers have been clear that they want to know if a purchase is going to overdraw their account," Susan Faulkner, a deposits and card products executive, said at the time. "Our solution is simple, clear and helps customers control their finances by reducing the possibility of overextending themselves at the point of sale with a debit card."

While bank customers could still link their checking accounts to another Bank of America savings or checking account to cover overdrafts, the only other option they had to make the purchase and avoid the overdraft was using another form of payment like a credit card. Customers didn't warm to that idea, and now Bank of America is rethinking its rigid policy.

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It's true that some bank executives noticed that the March 2010 overdraft policy had led to positive responses from customers. Laurie Readhead, a retail banking executive, noted at a bank conference earlier this month that Bank of America had seen "a significant improvement in our customer experience since implementing the overdraft policy," but customers also showed signs of pining for the option of going ahead with the transaction anyway, even though they might incur an overdraft penalty.

"For the most part, they don't want to go back to the experience that they were having before, where they were consistently incurring multiple $35 fees," Readhead said. "We think the text message solution is a much better approach to let the customer choose, because the customer still wants to choose whether or not they want to proceed with the transaction."

Consequently, the move to a text app that overrides an overdraft block could be good business for Bank of America. The bank's deposit service charges fell 26% in 2010, and any way it can restore some of those service fees will only help the bank's bottom line.

And if the overdraft coverage makes bank customers happier, so much the better for Bank of America.

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