The Biden administration is taking steps to rein in the exorbitant overdraft fees imposed by major banks in the United States. President Joe Biden has criticized these fees, which can reach $30 or more, for disproportionately burdening vulnerable Americans while boosting banks’ profits. The proposal, put forth by the Consumer Financial Protection Bureau (CFPB), seeks to close a legal loophole that has allowed overdraft lending services to sidestep consumer financial protection laws, including the Truth in Lending Act. If implemented, the rule will apply to insured financial institutions with assets exceeding $10 billion.
Under the proposed rule, large banks would still have the option to offer overdraft loans, but they would be required to comply with existing lending laws and disclose any applicable interest rates. Alternatively, banks could charge a fee to recover their costs using a benchmark that could be as low as $3, or at a cost based on their own calculations if they provide evidence of their expenses. The CFPB has suggested several benchmark amounts, including $3, $6, $7, or $14. The rule is expected to take effect on October 1, 2025, if approved.
This is not the first time the Biden administration has addressed excessive fees in consumer services. Last year, the Federal Trade Commission proposed comprehensive rules to tackle hidden charges that inflate the costs of travel, tickets, banking, and other services.