U.S. President Joe Biden is now targeting overdraft fees in banks. To solve this problem, the U.S. Consumer Financial Protection Bureau introduced a new rule proposal.
Based on CFPB's data, overdraft fees cost Americans over $280 billion since 2000. This means that banks' annual revenue generated from overdraft fees soared for the past few years.
Financial experts said that banks generate more income in overdraft fees because more and more U.S. citizens are getting debit cards, which are tied directly to their accounts.
Now, Joe Biden wants to solve this issue. Here's what you need to know about the new overdraft fee rule proposal of CFPB.
Joe Biden Targets Banks' Overdraft Fee-Calling It Exploitation
On Wednesday, Joe Biden complained about the exorbitant overdraft fees that Americans have to deal with each year.
"For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines," said the American president via CNBC's latest report.
He criticized banks for charging Americans too much overdraft fees, saying that banks call it a service, but consider it an "exploitation."
Because of this, CFPB unveiled long-awaited changes that could help solve the issue of how the largest banks in the U.S. structure overdraft protection plans.
CFPB said that the new regulations will be implemented in banks with over $10 billion in assets. This means that around 175 financial institutions in the United States will be affected.
The Financial Consumer Protection Agency explained that rules will focus on these large American banks because they account for more than 80% of the overdraft fees yearly.
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About CFPB's Overdraft Fee Rules
Bankrate explained that overdraft fees are charges implemented when bank consumers withdraw or transfer money causing their account balance to become negative.
This fee will also be charged if the consumer's bank account is already negative when a transaction pushes through. In short, overdraft fees are charged when consumers withdraw money from their accounts than what they have in it.
These overdraft fees can be pretty costly. Here's how CFPB's proposed rules could solve the overdraft fee problem.
CFPB's new rules offer two options to banks:
- OPTION 1: Offer overdraft loans for profit and treat funds they provide in advance as credit loans
- EFFECT: Fewer Americans would surprised with overdraft fees.
- OPTION 2: Offer overdraft coverage as a courtesy service instead of a revenue-generating line of credit.
- EFFECT: Will allow funds to be exempted from TILA regulations and enable banks to charge fees "in line with their costs or in accordance with an established benchmark."
