The Biden administration is was suggested New rules to curb overdraft fees that occur when consumers withdraw more than the available funds in their bank accounts.
According to the Consumer Financial Protection Bureau (CFPB), banks currently collect about $9 billion a year in overdraft fees, and people who pay overdraft fees pay an average of about $150 in overdraft fees each year. He says he is paying. As Emily Stewart wrote in her Vox piece, overdraft fees are just one of the many ways “banks extract funds from consumers.” The Biden administration's new proposal would cut those fees by about $3.5 million a year overall, according to the White House.
The proposal still needs to go through the usual regulatory approval process (more on that below), but if approved, it would go into effect in October 2025. This applies to banks and credit unions with more than $10 billion in assets and essentially treats overdraft programs as credit programs. That means these overdraft programs must follow the same requirements that apply to credit cards, including annual interest rates, first-year fee limits, and reasonable penalty disclosures. The rule would also limit fees for overdraft services to cover the institution's costs, ranging from $3 to $14 instead of the $35 some banks currently charge.
“These fees keep people out of their bank accounts and take away their access to financial services,” said Lauren Saunders, deputy director of the National Consumer Law Center. “This proposed rule would level the playing field, promote fair competition, and benefit both responsible banks and consumers.”
Why is the Biden administration doing this?
The people hardest hit by overdraft fees are some of the most financially vulnerable.
Three quarters of bank revenue comes from overdraft fees. 8% of customers. Among frequent overdrafts are 90 percent More than a third of households with incomes of $30,000 or less reported being charged overdraft fees, with daily balances of only a few hundred dollars at most. 6 or more times Banks can collect these fees multiple times a day, even though the cost of executing a transaction is low.
“Banks call this a service, I call it exploitation,” President Joe Biden said in a statement.
Mr. Biden has done a great job of addressing these kinds of small economic injustices that burden ordinary Americans. He's also pursuing junk fees more broadly. Hidden fees not only make everything from airline reservations to concert tickets more expensive than listed, they also feel like a shady company's attempt to deceive consumers.This is an initiative called overwhelming bipartisan support.
It may not solve America's larger economic problems: even if forecasters Optimistic The U.S. economy will avoid recession in 2024, a majority said on CBS News in December. poll The economy is bad, their incomes aren't keeping up with inflation, and only a few at the top have a chance of advancement. But if these proposed regulatory changes go into effect, at least you may no longer have to drown in fees.
“This is just one part of my administration's broader plan to lower costs for hardworking families,” Biden said in a statement. “While we will continue to do everything we can to reduce costs and grow our economy from middle to lower, we will continue to push back against extremes that seek to provide more perks to the rich and big corporations and weaken competition. We will stand up to this Republican effort.”
Will that actually happen?
The proposed rule is the result of years of efforts to crack down on fraudulent overdraft fees. David M. Silverman, a former associate director in the CFPB's Division of Investigations, Markets and Regulation, and now a senior fellow at the Center for Responsible Lending, said rules very similar to the current proposal could be adopted. He said it was highly sexual.
But first, the rules would have to go through a lengthy rule-making process, including soliciting public feedback and adopting changes accordingly. This process probably won't completely eliminate the rules, but it could potentially change them in meaningful ways. Silverman said he will carefully consider how the proposal draws the line in terms of the size of financial institutions it covers and how it defines preferential overdraft programs.
And the rules are likely to face legal challenges from banks, which are already organizing protests.
“This proposal would allow banks to provide overdraft protection to customers, including those with little or no other means to access the liquidity they need,” the American Bankers Association, an industry group, said in a statement. “It will become significantly more difficult.”
Still, Silverman believes that the CFPB “provided a strong legal basis for its activities,” in fact in 1969, when it admitted that it would no longer treat overdraft programs as a form of credit. It simply repeals the exemptions adopted by the Federal Reserve. As my colleague Li Zhou writes, overdraft fees were initially conceived as “primarily a check-related penalty” to protect customers from the inconvenience of bounced checks. But in the late '90s, banks started introducing debit cards, and suddenly it became a way for people to pile up debt.
There are also questions about how banks will change their policies if the rule is adopted. Banks could effectively pass on the costs of this rule to consumers simply by raising fees in other areas of their business. But so far, that hasn't happened, Silverman said.
Some banks have already voluntarily changed their overdraft fee policies. Capital One has completely eliminated that policy, and Bank of America has completely eliminated that policy. Reduced overdraft fees from $35 to $10.in May 2023 Reportthe CFPB found no clear correlation between the decline in banks' overdraft fee income and the increase in other listing fee income, such as checking account servicing fees.
Sanders said this shows that “it is possible to profit from overdraft fees without abusing them.”
