Biden’s bold plan: Slash overdraft fees and empower bank users.

January 17, 2024
1 min read

TLDR: Biden Rule Would Cut Bank Overdraft Fees by More Than Half

The Biden administration has proposed a new rule aimed at reducing expensive overdraft fees charged by banks. The Consumer Financial Protection Bureau (CFPB) rule would close a regulatory loophole that allows banks to charge fees when debit-card transactions cause an account balance to go negative. Under the new rule, banks could still offer overdraft loans but would have to comply with federal consumer protections for lending. This includes disclosing interest rates and fees for overdraft transactions, similar to requirements for credit cards and other loans.

The new rule would also cap future overdraft fees, ensuring that they do not exceed the banks’ losses. The CFPB is still finalizing the exact amount but is considering options such as $3, $6, $7, or $14, plus $0.50 per transaction. President Biden believes that some banks have been exploiting consumers with exorbitant fees and calls this new rule a way to protect vulnerable Americans. The CFPB estimates that the rule could save consumers $3.5 billion in overdraft fees per year, benefiting approximately 23 million households.

The rule would only apply to financial institutions with $10 billion or more in assets, which includes the 175 largest depository institutions in the country. The CFPB has identified overdraft fees as an area of abuse, with consumers having paid $9 billion in fees and $280 billion over the past two decades. The average consumer overdraft fee is $26 and is typically paid within three days.

The proposed rule is part of President Biden’s broader efforts to curb so-called “junk fees” and protect consumers from predatory practices in the financial industry. The Biden administration aims to make banking services more affordable and accessible for all Americans.

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