It’s a bit drafty in here… so the Biden admin wants to close a window. The Consumer Financial Protection Bureau this week proposed a cap on bank overdraft fees — the charges triggered when a customer’s transaction exceeds their balance. The rule would see overdraft fees ($35 is the standard) drop to as low as $3, saving US households ~$3.5B/year, and wiping out billions in bank revenue from what the CFPB calls a “junk fee harvesting machine.”
What’s being proposed? That banks only charge a fee equal to their actual cost to cover overdrawn accounts, or charge a benchmark fee of between $3 and $14.
Who benefits? Folks with lower incomes. 23M US households overdraft every year (paying $150, on average). Just 8% of bank customers account for ~75% of banks’ overdraft revenue.
Who gets hurt? Big banks, which rake in ~$9B/year from these charges (~$280B over the past two decades). JPMorgan Chase, which collected an industry-topping $840M in overdraft fees in the first three quarters of last year, recently reported a historic profit.
There’s always money in the junk stand… The CFPB’s overdraft proposal squeezes neatly into the Biden admin’s goal of cracking down on junk fees. Americans spend $65B/year on fees like overdraft charges, resort fees, and internet-bill tack-ons. Biden’s fight against such fees has led to a barrage of lobbying from industries looking to maintain a massive chunk of revenue they’ve come to rely on. Also: US household debt is at a record high.
It gets hot in the hot seat… Scrutiny and hefty regulator penalties have already caused some big banks to slash their overdraft fees. Bank of America cut its charges from $35 to $10, and Capital One eliminated them altogether. More banks could opt for the low- or no-fee life before the proposed rule would take effect in late 2025.