XPost: or.politics, ca.politics, alt.fan.rush-limbaugh
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http://fortune.com>
Bank overdraft fees could drop to $3 under new Biden proposal: 'Banks call
it a service-I call it exploitation'
Ken Sweet, Cora Lewis, Bloomberg
The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest move by the Biden administration to combat fees it says pose an unnecessary burden on
American consumers, particularly those living paycheck to paycheck.
The change could potentially eliminate billions of dollars in fee revenue
for the nation's biggest banks, which were gearing up for a battle even
before Wednesday's announcement. Exactly how much revenue depends on which version of the new regulation is adopted.
Banks charge a customer an overdraft fee if their bank account balance
falls below zero. Overdraft started as a courtesy offered to some
customers when paper checks used to take days to clear, but proliferated
thanks to the growing popularity of debit cards.
"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," President Joe Biden said
in a statement. "Banks call it a service - I call it exploitation."
Under the proposed rule, banks could only charge customers what it would
cost them to break even on providing overdraft services. This would
require banks to show the CFPB the costs.
Alternatively, banks could use a benchmark fee that would apply across all affected financial institutions. Regulators proposed several fees - $3,
$6, $7 and $14 - and will gather industry and public input on the most appropriate amount. The CFPB says it arrived at these figures by looking
at how much it cost banks to recoup losses from accounts that went
negative and were never paid back.
According to research conducted by Bankrate last August, the average
overdraft fee was $26.61. Some banks charge as much as $39. The nation's biggest banks still take in roughly $8 billion in overdraft fees every
year, according to data from the CFPB and banks' public records.
Biden has made the elimination of "junk fees" one of the cornerstones of
his administration's economic agenda heading into the 2024 election.
Overdraft fees have been at the center of that campaign, and the White
House directed government regulators last year to do whatever is in their
power to further curtail the practice.
"We are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting
machine," said Rohit Chopra, director of the Consumer Financial Protection Bureau, in a prepared statement to reporters.
Banks could also provide small lines of credit to allow customers to
overdraft, a service that would operate like a credit card. Some banks
like Truist Bank currently offer that type of service.
The CFPB has signaled for months that it planned to curtail the collection
of overdraft fees, with regulators making statements and the bureau
putting out research that shows overdraft fees overwhelmingly impact the
poor and households of color, who often overdraft multiple times a year.
In response, banks have prepared a massive lobbying campaign to rebuff the Biden Administration's proposal. Whichever proposal is adopted is almost certain to be challenged in court.
The rules would apply only to banks with more than $10 billion in assets,
which is roughly 175 banks that make up most of the financial institutions Americans do business with. The rules spare small banks and credit unions,
some of which rely disproportionately on overdraft fees. CFPB officials
told reporters that it chose to focus on the largest banks since most
Americans bank at these large institutions and that is where the
widespread abuses have historically happened.
Decades ago, banks created a service that allowed certain customers with checking accounts to go negative in their accounts to avoid bouncing paper checks. What started as a niche service became a massive profit center for
the banks after the proliferation of debit cards that caused customers to
debit their bank accounts for small and large amounts of money multiple
times a day.
Overdraft fees have been a financial bonanza for the banking industry,
with the CFPB estimating that banks collected $280 billion in overdraft
fees in the last 20 years. These fees became so popular that one bank CEO
named his boat the " Overdraft."
Caving to popular and political pressure, most of the biggest banks have
added safeguards to customers' accounts to allow them to bring the balance
back into positive territory before they incur a fee. Bank of America,
once considered by industry critics to be the biggest abuser of overdraft
fees, cut its fee from $35 to $10 two years ago and says revenue from
overdraft fees is now less than 10% of what it had been.
While overdraft fees have fallen in recent years, a Bankrate survey found
that 91% of bank accounts still can charge overdraft fees.
If the rule is adopted and survives political and legal challenges, the
new regulations would go into effect in the autumn of 2025.
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Anyone that isn't confused doesn't really
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~Edward R. Murrow USA WWII Correspondent ==================================================
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