BMO Harris hops on overdraft fee-cutting bandwagon

BMO Harris Bank plans to join a host of other large and regional banks in slashing its overdraft fees.

The U.S. arm of Canada’s Bank of Montreal announced Thursday that it will reduce the charge this fall from $36 to $15. Before the end of August, BMO Harris also plans to eliminate fees both for having insufficient funds during a transaction that gets declined and for fund transfers made to avoid an overdraft. The changes will apply to both consumers and small-business customers.

"Given the current economic climate, we know it is more important than ever to help our consumer and small business customers work toward their financial goals," said Paul Dilda, BMO's head of consumer strategy, in a statement about the bank’s decision.

Daniel Acker/Bloomberg

The changes mark the latest step by BMO Harris in reforming its overdraft practices. Last November, the Chicago-based bank raised the threshold at which customers get charged an overdraft fee from $5 to $50. At that time, it also cut the maximum number of overdraft fees that a customer can get charged in a single day from four to three.

The $21 price cut puts the $166.5 billion-asset bank in the company of M&T Bank and Huntington Bancshares, both of which have pledged to reduce overdraft fees to $15.

Some large banks have gone even further. Bank of America has committed to cutting the fees from $35 to $10, while Citigroup, Ally Financial and Capital One Financial have vowed to eliminate them altogether.

The industry-wide shift is happening as regulators hint at their interest in curbing overdraft fees at banks that don’t take proactive steps. A recent study by the Pew Charitable Trusts found that 25 large banks stand to lose a total of $4 billion in annual revenue as a result of the recently announced changes.

BMO did not provide an estimate of how much fee income it expects to forgo as a result of the changes announced Thursday, but Chief Financial Officer Tayfun Tuzun spoke about the Canadian bank’s fee-income strategy at an industry conference last month.

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Tuzun said that recent acquisitions, including a pending $16.3 billion deal for Bank of the West, will provide the Toronto-based bank with increased revenue opportunities, particularly in connection with larger commercial customers.

"Currently, we are the number-five commercial lender in North America, which gives us significant partnership opportunities between our commercial business and our capital markets business. And we look forward to actually an even more enhanced fee-income picture going forward with Bank of the West," Tuzun said.

Bank of Montreal is awaiting regulatory approval for the Bank of the West acquisition. A public hearing is scheduled for July 14, and BMO has said that the deal is expected to close by the end of 2022.