The Biden administration revealed new draft regulations on Wednesday aimed at potentially saving consumers $3.5 billion annually by restraining the fees levied by large banks on overdrawn deposit accounts.
This announcement represents the latest initiative in President Joe Biden’s 2022 campaign against what he terms “junk fees” faced by consumers in various sectors, including housing, tourism, medicine, and finance.
Republican contenders vying for their party’s presidential nomination in the upcoming elections have sought to leverage President Biden’s dwindling public approval ratings for his economic management, emphasizing a post-pandemic surge in consumer prices.
In a statement, President Biden criticized overdraft fees as “exorbitant” charges that enable banks to bolster earnings at the expense of vulnerable wage earners. He stated, “Banks call it a service—I call it exploitation.”
The U.S. Consumer Financial Protection Bureau (CFPB) disclosed that the proposed rule, if accepted, would close a regulatory loophole that had unfairly allowed banks to offer costly credit with undisclosed terms to less affluent depositors.
With charges set at $35, these fees typically exceed the majority of consumer overdrafts, which average $26, according to the agency.
Approximately 23 million households incur overdraft fees annually, contributing to banks’ total revenue of $12.6 billion in 2019. Wells Fargo and JPMorgan Chase & Co collectively accounted for a third of all such revenue collected by banks with assets exceeding $1 billion in 2022, as reported by the CFPB.
Predictably, the banking industry is expected to strongly oppose the proposal, already publicizing counterarguments to CFPB research on overdraft charges.
Last month, the CFPB highlighted in a report that a quarter of consumer households were charged overdraft fees in the previous month, often catching them by surprise. In contrast, bank lobby groups argue that most consumers appreciate the protection offered by overdraft services.
The new proposal applies to banks with assets exceeding $10 billion, allowing them to assess fees ranging from $3 to $14 to recover losses from overdrafts. Banks can charge more if they can justify the costs with relevant data.
The rule also permits banks to offer overdraft loans, subject to the same regulations governing other forms of consumer credit, provided they make clear disclosures, including applicable interest rates.
The proposal is now open to a public comment period, with officials anticipating a final version to take effect in late 2025.
