The Biden admin’s crackdown on bank overdraft fees could save Americans billions
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Fee’d up… Yesterday, the Consumer Financial Protection Bureau finalized a rule that would cap the fees consumers pay when their bank accounts are overdrawn. Currently, banks aren’t limited on how much they can charge for overdrafts (the average charge is $35). The new rule would cap fees at $5 or an amount that covers their costs and losses. Banks can also keep charging any overdraft fee amount, but only if terms are disclosed in the same way as a regular loan. Overdraft fees are a moneymaker for banks, generating $280B in revenue since 2000. The new cap could save consumers $5B/year.
Fine print: The rule’s set to go into effect in October, but might face pushback in Congress — or if banks successfully sue to stop it.
Overdraft under pressure… Banks have slashed overdraft fees in recent years to try to avoid more regulations. Last year, JPMorgan Chase, Wells Fargo, and Bank of America earned a combined $2.2B in overdraft charges — $700M less than in 2022. JPMorgan said that over 70% of its overdraft transactions don’t have fees and that customers can choose accounts that don't carry those penalties. In 2022, Bank of America slashed its overdraft fees from $35 to $10. Capital One, Citi, and Ally ditched the fees altogether after pandemic stimulus $$ led to fewer overdrafts.
Checks and balances encourage change… Even without the overdraft cap, many banks had already changed their fee policies as regulatory scrutiny intensified. The Biden admin’s crackdown on extra charges like junk fees has sparked industry-wide change. In March, Visa and Mastercard agreed to cut and cap their swipe fees for the next several years.