President Joe Biden’s Consumer Financial Protection Bureau (CFPB) unveiled a new proposed rule that could limit bank overdraft fees to as little as $3. The proposed rule applies only to banks and credit unions with over $10 billion in assets — limiting the fee caps to roughly 175 of the largest banking institutions in the U.S. According to the CFPB, banks currently take in around $9 billion annually in overdraft fees.
The proposed rule would limit banks to charging either the coverage cost for an overdrawn account or a capped fee determined by the CFPB. This, in practice, should drastically lower the typical overdraft fee from the $35 most consumers are currently charged.
“When companies sneak hidden junk fees into families’ bills, it can take hundreds of dollars a month out of their pockets and make it harder to make ends meet,” President Biden said yesterday in a statement released by the White House. “For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more.”
He added: “Banks call it a service—I call it exploitation.”
The American Bankers Association (ABA) blasted the proposed rule change. “Today’s proposal from the CFPB marks the bureau’s latest attempt to demonize and mischaracterize highly regulated and clearly disclosed bank fees for a service that surveys consistently show Americans value and appreciate,” the ABA said in a statement.
The ABA claims the rule change would discourage banks from offering consumers overdraft protection, “including those who have few, if any, other means to access needed liquidity.” Critics of the current rules governing overdraft fees argue that banks too often view overdrafts as a quasi-lending instrument, with overdraft fees treated as a form of interest that exceeds federal regulations.
