The Biden administration revealed a new law On Wednesday, he aims to reduce bank overdraft fees to $3, a move the president said would help end abusive practices by financial institutions.
Under the proposal, banks could continue to charge fees when a customer’s account drops below zero, but either at a rate in line with a bank’s actual costs of managing an overdraft or at a specific benchmark rate created by the new rule.
The Consumer Financial Protection Bureau (CFPB) has proposed potential fees of $3, $6, $7 or $14 and is seeking feedback from banks and the public on what would be appropriate. Current overdraft fees often run $30 or more, taking a significant chunk out of lower-income accounts.
“Banks call it a service, I call it exploitation.”
– President Joe Biden
Rohit Chopra, Director of the CFPB, said in a statement That banks turned overdraft fees into a cash cow they weren’t meant to be, especially with the growing popularity of debit cards over the years.
“Decades ago, overdraft loans received special treatment to make it easier for banks to cover paper checks that were often sent through the mail,” Chopra said. “Today, we are proposing rules to close a long-standing loophole that has allowed many large banks to turn overdrafts into a massive machine for collecting unwanted fees.”
President Joe Biden was more direct about overdraft fees in a statement issued by the White House.
He said: “Banks call it a service, and I call it exploitation.”
The new rule will apply to approximately 175 large banks with at least $10 billion in assets. These banks “typically” charge a $35 overdraft fee, though most of the debit card transactions in question are $26 or less and are repaid quickly, the CFPB said.
The agency estimates that this rule would save consumers a total of $3.5 billion or more annually, or an average of $150 for households hit with overdraft fees.
Such federal rules must go through a public comment period before they can be finalized and implemented, and often face legal and political opposition. The overdraft proposal could face legal challenges from the powerful financial services industry.
Overdraft fees have generally declined in recent years, in part due to increased regulatory scrutiny of the practice. Financial Health Network released research The June report showed that banks’ overdraft revenue fell by 6% in 2022 compared to the previous year, although the proportion of households paying fees remained flat.
According to the group’s survey, half of the customers who paid the fees said the overdraft was accidental.