New Proposal Aims to Slash Overdraft Fees to Just $3
Overdraft fees can definitely ruin a person’s day. Bad enough you don’t have enough money, so the bank then proceeds to charge you more of what they know you don’t have. Well, there might be some good news coming your way regarding overdraft fees.
These fees occur when you don’t have enough money in your account to cover your transactions. Though the cost of overdraft fees varies by bank, they may cost around $35 per transaction according to the Federal Deposit Insurance Corporation (FDIC).
On Wednesday, the Consumer Financial Protection Bureau (CFPB) said it’s proposing a rule that would stop excessive overdraft fees charged to customers of large banks and credit unions. According to the this could potentially save consumers as much as $3.5 billion a year. They also pointed out that approximately 23 million households pay overdraft fees in any given year.
How will it work?
The new rules will only affect banks with over $10 billion in assets, which is about 175 banks nationwide, according to the CFPB. These banks usually make up more than 80% of the overdraft fees charged each year.
According to the suggested rule, banks would only be allowed to charge customers what it actually costs them to provide overdraft services, requiring them to share these costs with the CFPB.
Alternatively, banks could go for a one-size-fits-all approach with a set fee for all affected financial institutions. Regulators have proposed various fees, including $3, $6, $7, and $14, seeking input from the industry and the public to determine the most suitable amount. The CFPB came up with these numbers by checking out how much it sets banks back to recover losses from accounts that end up in the red and never get paid back.
The White House has introduced a proposal that could reduce the cost of overdrawing a bank account to as low as $3. This is part of the Biden administration’s ongoing efforts to address fees that it believes impose a financial burden. Adding emphasis to those living paycheck to paycheck.
The CFPB expects the rule to be finalized next year and to start in October 2025.
