Joe Biden pledges to slash overdraft charges in half to kill ‘money cow’ of bankers
The price of overdrawing a checking account might fall to as little as $3 below a brand new proposal introduced by the White House on Wednesday.
It comes because the Biden administration seems to deal with charges it says add an pointless burden on US customers, notably low-income households.
Officials mentioned the transfer might save customers, who pays as a lot as $37 everytime they go into unfavorable steadiness – a complete of $3.5 billion a 12 months.
The Consumer Financial Protection Bureau (CFPB) put ahead potential charges of $3, $6, $7 or $14 and is seeking to collect suggestions from banks and the general public on what charges could be applicable.
CFPB director Rohit Chopra mentioned in an announcement that banks have turned overdraft charges right into a money cow they weren’t created for, with the recognition of debit playing cards rising considerably through the years.
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“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 mentioned.
“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 did not mince phrases as he launched a scathing assault on the banks’ use of overdraft charges in an announcement.
“Banks call it a service – I call it exploitation,” he mentioned.
The new rule would apply to round 175 massive banks with property of at the least $10 billion. The company mentioned these banks “typically” cost an $35 overdraft price, although many of the debit card transactions concerned are for $26 or below and are swiftly paid again.
Federal guidelines of this sort need to undergo a public-comment interval earlier than being finalized and implement, and are sometimes hit with political pushback.
The proposal might face additionally authorized challenges from the highly effective monetary providers business.
As the CFPB acknowledged, overdraft charges have usually been declining lately, partly due elevated scrutiny from regulators.
Research from the Financial Health Network launched in June, confirmed that overdraft income for banks had fallen 6 p.c in 2022 in contrast with the earlier 12 months. However, the proportion of households having to pay the charges remained regular.