The Biden administration has proposed a new rule that would curb overdraft fees incurred when consumers withdraw more than the available funds in their bank account.
Banks currently collect about $9 billion annually in overdraft fees, and people who pay overdraft fees pay about $150 on average every year on them, according to the Consumer Financial Protection Bureau (CFPB). As Emily Stewart has written for Vox, overdraft fees are just one of the many ways “banks have … of extracting funds out of consumers.” The new proposal from the Biden administration would slash those fees by about $3.5 million a year overall, according to the White House.
The proposal still has to go through a normal regulatory approval process (more on that later) but would take effect in October 2025 if approved. It would apply to banks and credit unions with more than $10 billion in assets, and would essentially treat overdraft programs as credit programs. That means that these overdraft programs would have to abide by the same requirements that apply to credit cards, such as disclosure of annual interest rates, fee limits in the first year, and reasonable penalty fees. The rule would also limit fees for overdraft services to just cover the institutions’ costs — somewhere between $3 and $14, instead of the $35 some banks charge now
“These fees push people out of bank accounts and deprive them of access to financial services,” said Lauren Saunders, associate director of the National Consumer Law Center. “This proposed rule will level the playing field, promote fair competition, and benefit both responsible banks and consumers.”
Why is the Biden administration doing this?
The people who are hit hardest by overdraft fees are some of the most financially vulnerable.
Three-quarters of bank revenue from overdraft fees comes from just 8 percent of their customers. Among frequent overdrafters, 90 percent had a daily balance of no more than a few hundred dollars, and among…
Read the full article here
