“Junk Fees”: Biden declares war on excessive fines charged by banks for overdrafts

The Consumer Financial Protection Bureau (CFPB) and the White House proposed a new regulation this Wednesday to eliminate the excessive overdraft fees charged by the largest financial institutions in the United States.

If approved, the new rules would close a longstanding loophole that exempted overdraft coverage services from compliance with provisions of the Truth in Lending Act and other financial protection laws, and from fees or penalties charged by banks. Will establish limits. Providing billions of dollars in savings to low-income Americans,

The proposal constitutes the latest effort by President Joe Biden’s administration to tackle the collection of so-called ‘junk fees’, which it calls an unnecessary burden on American consumers, particularly those who live paycheck to paycheck. .

“For too long, some banks have charged excessive overdraft fees, sometimes $30 or more, often disproportionately hurting the most vulnerable Americans while banks increase their profits,” President Joe Biden said in a statement. “Banks call it service, I call it exploitation.”

According to the CFPB, for decades, the largest financial institutions have covered overdrafts on accounts that do not have sufficient funds in exchange for fees or penalties, a highly profitable operation that has earned the big banks billions of dollars in annual income.

Under the proposed rules, banks could continue to cover such overdrafts but comply with existing credit laws, including disclosing the applicable interest rate, or alternatively, they could charge between $3 and $14 to recover their costs. may charge a fee, or a cost that they calculate, justifying it with cost data.

, Today we’re proposing rules to close a long-standing loophole that allowed many big banks to turn overdrafts into a giant junk fee-collection machine.says CFPB Director Rohit Chopra.

The proposed rule would apply to insured financial institutions with more than $10 billion in assets, which would include approximately 175 of the nation’s largest depository institutions. These institutions typically charge a fee of $35 to cover an overdraft, although most consumer debit card overdrafts are less than $26 and are refunded within three days.

According to CFPB data, about 23 million households in the United States pay overdraft fees or penalties each year, sometimes more than once. The agency estimates that the new rule could save consumers $3.5 billion or more, keeping money in the hands of families who currently pay them.

According to research conducted by Bankrate last August, the average overdraft fee was $26.61, although some banks charge up to $39. The bureau’s research also shows that overdraft fees disproportionately impact the poorest and families of color, who often overdraft multiple times a year.

Biden has made eliminating “junk fees” one of the cornerstones of his administration’s economic agenda ahead of the 2024 election. Overdraft fees have been at the center of that campaign, and last year the White House ordered government regulators to do everything in their power to further limit the practice.

The American Bankers Association and other advocacy groups wrote, “We urge the CFBP not to continue pursuing this rule until it has evaluated its economic impact on community banks and credit unions, which would have to do so. Is obliged.” lobby Banking in a joint statement.

He lobby The bank is trying to be as vocal as possible in its opposition to this government initiative, in preparation for an almost certain legal challenge to any rules the CFPB imposes. Any legal battle would have a good chance of ending up in the Supreme Court.

Nevertheless, succumbing to popular and political pressure, Most big banks have added safeguards to customers’ accounts so they can get their balances back into positive territory before they face penalties., Bank of America, once considered the biggest abuser of overdraft fees by industry critics, cut its fees from $35 to $10 two years ago and says revenues from overdraft fees are now less than 10% of what they were.

Big banks have also reduced charging non-sufficient funds fees, which occurs when a bank charges a customer a fee if they don’t have the funds to cover a fee but also refuses the transaction.

“The office has done its job well,” said Carter Dougherty, a spokesman for the group Americans for Financial Reform. “Some banks have got rid of overdrafts altogether and the world keeps spinning on its axis. “Bankers who can’t run their businesses without relying on junk fees should do something else.”

With information from the Associated Press,