Banks are gearing up to fight against the Biden administration’s campaign to rein in overdraft fees. The Consumer Financial Protection Bureau (CFPB) is expected to propose new rules this week that would further restrict banks’ ability to charge customers for overdrawing their bank accounts. The Biden administration has directed the CFPB and the Federal Trade Commission to take action against what it calls “junk fees.” Overdraft fees are still a significant source of revenue for banks, with the largest U.S. banks raking in around $8 billion per year. However, many banks have already reduced their fees in recent years. Bank of America, for example, lowered its overdraft fee from $35 to $10 in 2022.
The CFPB’s regulations are expected to focus on when overdrafts can be charged and how much banks can charge relative to the risk they are taking on. Critics argue that the cost to a bank to cover routine purchases is low, and that banks have safeguards in place to prevent accounts from going deep into the negative. A recent report from the CFPB found that a quarter of households making less than $65,000 frequently incur overdraft fees, and that Black and Latino households are more likely to overdraft. Small banks and credit unions have been slower to reduce overdraft fees, and some rely heavily on them for profitability.
CFPB Director Rohit Chopra has been a vocal critic of overdraft fees and has signaled that the bureau is ready to take action. The banking industry is unlikely to convince Chopra to delay the regulations, but it hopes to delay them long enough to have them overturned by a Republican Congress and president after the 2024 election using the Congressional Review Act. The banking lobby is also preparing for a legal challenge to the regulations, with the possibility that the case could reach the Supreme Court.
Overall, the battle over overdraft fees is intensifying, with the banking industry preparing for a fight against the Biden administration’s efforts to rein in the fees.
