The Biden administration on Wednesday announced a new rule that would limit the overdraft fees very large banks can charge their customers, a change that could save consumers $3.5 billion per year.
The Consumer Financial Protection Bureau’s proposed rule would only allow large banks to charge overdraft fees “in line with their costs” rather than making those fees what the agency terms a profit driver. The CFPB is seeking public comment on the amount the banks would be allowed to charge people who withdraw more money than is available in their bank accounts, with a limit ranging from $3 to $14. That’s significantly lower than the typical $35 overdraft fees they currently charge, according to the CFPB.
“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. Banks call it a service — I call it exploitation,” President Joe Biden said in a statement. “Today’s proposal would cut the average overdraft fee by more than half, saving the typical American family that pays these fees $150 a year.”
According to the CFPB, 23 million households pay overdraft fees in a year. Those fees are often higher than the amount of the overdraft itself, which the CFPB said is typically just $26.
What’s more, a CFPB report from March 2022 found that overdraft fees hit low-income Americans the hardest, even pricing them out of banking altogether. According to that report, 90% of frequent overdrafters, or people who overdraw their accounts more than 10 times a year, often have only “a few hundred dollars in their accounts at the end of any given day.”
Overdraft fees “can lead to real financial losses for families and turn setbacks into crises. For a low-wage worker, overdraft fees could take up an entire week of take-home pay, or more, over the course of a year,” according to the report.
The new overdraft rule is part of the Biden administration’s effort to cut back what it calls junk fees, which it defines as “hidden, surprise fees that companies sneak onto customer bills, increasing costs and stifling competition in industries across the economy.”
“Today, the Biden-Harris Administration is taking action to cut bank overdraft fees by more than half — saving Americans billions of dollars a year,” Vice President Kamala Harris tweeted on Wednesday. “This is another step in our continued efforts to take on unnecessary junk fees and lower costs for families.”