Biden's proposal targets overdraft fee limits at large banks

TL/DR -

The Biden administration has announced a rule to limit overdraft fees charged by large banks, a move that could save consumers $3.5 billion per year. The new rule from the Consumer Financial Protection Bureau (CFPB) requires these banks to align overdraft fees with their costs, lowering the fee from an average of $35 to a range of $3 to $14. According to the CFPB, this change would predominantly benefit low-income Americans, who often pay higher overdraft fees than the overdraft amount itself, and could potentially save a typical American family $150 a year.

Biden Administration Proposes Rule to Limit Overdraft Fees by Banks

On Wednesday, the Biden administration disclosed a new rule aimed at restricting large banks' overdraft charges, potentially saving consumers about $3.5 billion annually.

The Consumer Financial Protection Bureau's (CFPB) proposed rule would permit large banks to charge overdraft fees that reflect their costs and not as a source of profit. The proposed charges fall between $3 and $14, a significant decrease from the usual $35, states the CFPB.

"Banks have leveraged exorbitant overdraft fees for too long, affecting vulnerable Americans while enhancing their profits," President Joe Biden remarked. He added the proposal would decrease the average overdraft fee by over half, saving American families about $150 annually.

According to CFPB, about 23 million households incur overdraft fees annually, often exceeding the overdraft amount which averages at $26.

A March 2022 CFPB report highlighted that overdraft fees affect low-income Americans disproportionately, sometimes pricing them out of banking services. The study revealed that 90% of frequent overdrafters, those who overdraw their accounts more than ten times annually, often have a few hundred dollars in their accounts daily.

These fees can cause significant financial losses for families, turning minor setbacks into severe crises. For low-wage earners, annual overdraft fees could amount to a week's wage or more, the report explains.

The proposed overdraft rule forms part of the Biden administration's strategy to combat junk fees, described as hidden, surprise charges that increase costs and dampen competition across various industries.

Junk fees also encompass service charges on concert tickets and additional hotel room fees.

Vice President Kamala Harris tweeted on Wednesday, "Today, we're taking action to reduce bank overdraft fees by more than half, saving Americans billions annually. This is part of our ongoing efforts to tackle unnecessary junk fees and lower costs for families."

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