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JPMorgan Chase & Co. ( JPM - Analyst Report ) is set to drop overdraft fees on debit card transactions of $5 or less, effective next month. Currently, the company charges $34 per purchase, irrespective of the size of transaction. With implementation of this change, customers will be relieved of paying fees on smaller transactions.
The decision to scrap fees stems from the lawsuit settlement that cost JPMorgan $110 million in damages. Infuriated customers, who condemned the bank’s dubious ways of overcharging overdraft fees, had filed this class action lawsuit. The bank’s decision to nullify overdraft fees seems to be a measure to work upon its dented goodwill.
JPMorgan and several other major banks like Commerce Bancshares Inc ( CBSH - Analyst Report ) and Bank of America Corporation ( BAC - Analyst Report ) were accused of reordering transactions from largest to the smallest, causing the balances to deplete faster. This made customers vulnerable to excessive fees. It caused a nationwide uproar, and the customers filed various lawsuits demanding compensation. It also necessitated regulatory authorities to take measures against banks’ unwarranted activities.
Earlier this year, JPMorgan had reduced its overdraft protection transfer fee from $12 to $10. Also, the fee charged for stop payment was lowered to $30 from $34. In addition to this, if stop-payment is appealed via phone or online, the bank will charge $25 instead of $27. All of these measures have placed JPMorgan apart from the rest of the banking giants, which have resorted to fee hikes.
Some banks, like Fifth Third Bancorp ( FITB - Analyst Report ) and U.S. Bancorp ( USB - Analyst Report ) , are set to increase the overdraft fees considerably. Wells Fargo & Company ( WFC - Analyst Report ) has introduced a monthly checking fee of $7. According to a survey conducted by Consumer Federation of America, many more banking institutions are about to follow this trend. This will come as a major setback for customers, who are reeling under high fees.
Of late, JPMorgan has been in the news for the all wrong reasons. Lawsuits, losses and the recent downgrade of credit rating by Moody’s all dealt blows to the banking giant. Therefore, the action to reduce various fees can be counted as a plan to improve public relations by the bank.
Currently, JPMorgan retains a Zacks #4 Rank, which translates into a short-term Sell rating. Considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
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