Joe Biden Moves To Slash Bank Overdraft Fees With New Rule

The Biden administration unveiled a new rule Wednesday aimed at slashing bank overdraft fees to as low as $3, a move the president said would help end abusive practices by financial institutions.

Under the proposal, banks could continue to charge fees when a customer’s account falls below zero, but either at a price in line with the bank’s actual costs to administer the overdraft or at an established benchmark created by the new rule.

The Consumer Financial Protection Bureau (CFPB) proposed potential fees of $3, $6, $7 or $14 and is seeking feedback from banks and the public on what would be appropriate. Current overdraft fees often push $30 or more, taking a significant bite out of low-income accounts.

Rohit Chopra, the CFPB’s director, said in a statement that banks had turned overdraft fees into a cash cow that they were never intended to be, especially with the rising popularity of debit cards over the years.

“Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail,” Chopra said. “Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine.”

President Joe Biden was more blunt about overdraft fees in a statement released by the White House.

“Banks call it a service – I call it exploitation,” he said.

The new rule would apply to roughly 175 large banks that have at least $10 billion in assets. The CFPB said these banks “typically” charge an overdraft fee of $35, even though most of the debit card transactions involved are for $26 or less and are quickly repaid.

The agency estimates the rule would save consumers a total of $3.5