Joe Biden Plans To Slash Bank Overdraft Fees To As Little As $3

The Biden administration unveiled a new rule Wednesday geared toward slashing financial institution overdraft charges to as little as $3, a transfer the president mentioned would assist finish abusive practices by monetary establishments.

Under the proposal, banks may proceed to cost charges when a buyer’s account falls beneath zero, however both at a worth in step with the financial institution’s precise prices to manage the overdraft or at a longtime benchmark created by the brand new rule.

The Consumer Financial Protection Bureau (CFPB) proposed potential charges of $3, $6, $7 or $14 and is looking for suggestions from banks and the general public on what can be acceptable. Current overdraft charges usually push $30 or extra, taking a big chunk out of low-income accounts.

Rohit Chopra, the CFPB’s director, mentioned in a assertion that banks had turned overdraft charges right into a money cow that they had been by no means supposed to be, particularly with the rising recognition of debit playing cards through the years.

“Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail,” Chopra mentioned. “Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine.”

President Joe Biden was extra blunt about overdraft charges in a press release launched by the White House.

“Banks call it a service – I call it exploitation,” he mentioned.

The new rule would apply to roughly 175 massive banks which have no less than $10 billion in property. The CFPB mentioned these banks “typically” cost an overdraft payment of $35, although a lot of the debit card transactions concerned are for $26 or much less and are shortly repaid.

The company estimates the rule would save shoppers a complete of $3.5 billion or extra per yr, or a median of $150 to households that get hit with overdraft charges.

Such federal guidelines should undergo a public-comment interval earlier than they are often finalized and applied, and so they usually face authorized and political pushback. The overdraft proposal could face courtroom challenges by the highly effective monetary companies business.

As the CFPB famous, overdraft charges have usually been on the decline lately, partly due to elevated regulatory scrutiny of the observe. The Financial Health Network launched analysis in June exhibiting that overdraft income for banks dropped 6% in 2022 versus the earlier yr, although the proportion of households paying the charges remained held regular.

According to the group’s survey, half of the purchasers who paid the charges mentioned their overdraft was unintentional.