On Wednesday, the Biden administration released new draft regulations that, according to officials, could reduce the fees big banks charge on overdrawn deposit accounts, potentially saving consumers $3.5 billion annually.
The declaration was the most recent phase in President Joe Biden’s 2022 crackdown on the so-called garbage fees that customers must pay in several different sectors, including housing, travel, healthcare, and finance.
Republicans running for president this year have emphasized a post-pandemic spike in consumer prices in an attempt to capitalize on Joe Biden’s low public approval ratings for his handling of the economy.
Biden referred to overdraft fees as “exorbitant” expenses in a statement, saying they let banks increase profits at the expense of low-income workers.
“Banks call it a service; I call it exploitation,” he stated.
If enacted, the new rule that the U.S. Consumer Financial Protection Bureau proposed on Wednesday would eliminate a regulatory gap that had unjustly permitted banks to offer less wealthy depositors expensive credit on secret terms.
These fees, at $35, are usually more than the average customer overdraft of $26, according to the government.
The Consumer Financial Protection Bureau (CFPB) estimates that 23 million households pay overdraft fees annually, with banks earning $12.6 billion in revenue in 2019. Wells Fargo and JPMorgan Chase & Co. combined will account for one-third of all overdraft revenue collected by banks with assets above $1 billion by 2022.
The banking sector has already started to make its counterarguments to the CFPB study on overdraft fees public, so it was inevitable that the idea would encounter fierce resistance.
A quarter of consumer households experienced overdraft fees in the previous month, according to a survey released by the CFPB last month. In most cases, this was an unexpected charge.
Bank advocacy organizations assert that most customers value the security that overdraft services provide instead.
The new plan would apply to banks that have more than $10 billion in assets, enabling them to recoup overdraft losses by charging penalties ranging from $3 to $14, or higher if they can present cost evidence to support this.
As long as they follow the same guidelines that apply to other types of consumer credit, the rule would also permit them to issue overdraft loans as long as they provide explicit disclosures about the associated interest rates.
A public comment process is now in place for the proposal, and officials have stated that they anticipate the final version to go into effect in late 2025.
