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Biden Administration Proposes Changes to Overdraft Fees
January 17, 2024
The Biden administration has proposed changes to overdraft fees, proposing a rule that would curb excessive totals charged to customers of large banks and credit unions, potentially saving consumers as much as $3.5 billion a year.
“For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said Wednesday on the new rules. “Banks call it a service—I call it exploitation.”
The Consumer Financial Protection Bureau aimed to slash bank overdraft fees to as low as $3, a move the president said would help end abusive practices by financial institutions. The document reads, “The Consumer Financial Protection Bureau (CFPB) proposes to amend Regulations E and Z to update regulatory exceptions for overdraft credit provided by very large financial institutions.” It ensures that overdraft fees are not ballooning due to fees charged by a particular financial institution.
The proposal allows consumers to comparison shop across credit products better and provides substantive protections that apply to other consumer credit. The rule applies to banks and credit unions with at least $10 billion in assets, which account for the largest share of deposit account customers in the United States.
Many customers are surprised by overdraft fees, and those who can least afford them are most frequently charged. Overdrafts occur when customers spend or withdraw more money than they have available in their checking accounts.
The CFPB estimates that about 23 million households pay overdraft fees each year. Those fees translate to massive revenue for banks, with institutions making $12.6 billion in revenue from overdraft fees in 2019, the CFPB estimated.
A bank could either calculate its fees through a “breakeven standard” or rely on a “breakeven fee” set by the Consumer Financial Protection Bureau. The CFPB has yet to finalize an amount but is exploring overdraft fees of $3, $6, $7, or $14, plus $.50 per transaction.
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