For years, banks have charged customers charges of as much as $30 or extra for not having sufficient cash of their accounts to cowl their transactions, additional exacerbating money owed for people who find themselves already struggling. Now, plainly excessive overdraft charges will change into a factor of the previous because the Biden administration is now doubling down on its effort to decrease these prices for customers.
After the federal government initially introduced that will probably be cracking down on “junk fees” in October final yr, with financial institution overdraft charges being one of many primary targets, the Biden administration now has proposed a brand new rule that might slash overdraft charges to a brand new low.
Related: The U.S. authorities’s newest crackdown on banks may put extra money in your pocket
Under the rule, banks can be allowed to cost overdraft charges “in line with their costs or in accordance with an established benchmark.” The CFPB’s proposed benchmarks embrace $3, $6, $7, or $14, which is lower than half of what many banks are at present charging in overdraft charges on common.
The proposed rule, launched by the Consumer Financial Protection Bureau on Jan. 17, would “treat overdraft loans like credit cards and other loans as well as to provide clear disclosures and other protections,” in line with a CFPB information launch.
“For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” stated President Joe Biden in an announcement. “Banks call it a service—I call it exploitation. Today’s proposal would cut the average overdraft fee by more than half, saving the typical American family that pays these fees $150 a year. That would add up to save families $3.5 billion every year.”
The proposed rule by the CFPB would apply to banks which have over $10 billion in property which “covers approximately the 175 largest depository institutions in the country,” in line with the CFPB information launch, they’re additionally the banks that cost customers round $35 in overdraft charges.
Some common banks that at present cost the best overdraft embrace Chase, which expenses $34 if the account is overdrawn by over $50 at finish of day, Fifth Third Bank, $37, PNC Bank, $36, and Wells Fargo, $35, in line with information compiled by NerdWallet.
After dealing with current strain to decrease overdraft charges, banks have been altering their practices for the reason that finish of 2021, resulting in a decline in overdraft expenses for the previous two years, in line with current information from S&P Global Market intelligence.
The information additionally revealed that within the third-quarter of 2023, U.S. banks garnered $1.37 billion in overdraft price revenue, which is a 3% decline from the earlier quarter and a 22.7% drop from the identical quarter final yr.
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