(Reuters) – The Biden administration on Wednesday unveiled new draft regulations that officials said could save consumers $3.5 billion a year by curbing the fees large banks charge on overdrawn deposit accounts.
The announcement marked the latest effort in President Joe Biden’s 2022 crackdown on the so-called junk fees consumers face across various industries such as housing, tourism, medicine and finance.
Republicans battling for their party’s nomination in this year’s presidential elections have sought to capitalize on Biden’s poor public approval ratings for his handling of the economy, emphasizing a post-pandemic surge in consumer prices.
In a statement, Biden called overdraft fees “exorbitant” charges allowing banks to boost earnings to the detriment of vulnerable wage earners.
“Banks call it a service — I call it exploitation,” he said.
The U.S. Consumer Financial Protection Bureau said Wednesday’s proposed new rule, if adopted, would close a regulatory loophole that had unfairly allowed banks to extend costly credit on undisclosed terms to less wealthy depositors.
At $35, such charges are typically greater than most consumer overdrafts of $26, the agency said.
About 23 million households pay overdraft fees in a given year, with banks bringing in $12.6 billion in 2019 and Wells Fargo and JPMorgan Chase & Co (NYSE:) together accounting in 2022 for a third of all such revenue collected by banks above $1 billion in assets, according to the CFPB.
The proposal was certain to meet with strong opposition from the banking industry, which has already begun to publicize counterarguments to CFPB research on overdraft charges.
In a report last month, the CFPB said a quarter of consumer households were charged overdraft fees during the prior month and in most cases this came as a surprise.
Bank lobby groups say most consumers instead appreciate the protection overdraft services offer.
The new proposal would apply to banks with more than $10 billion in assets, allowing them to assess fees of between $3 and $14 to recover losses from overdrafts — or more if they can provide cost data to show why this is justified.
The rule would also allow them offer overdraft loans if they make clear disclosures, such as applicable interest rates, subject to the same regulations governing other forms of consumer credit.
The proposal is now subject to a period of public comment, with officials saying they expect a final version to take effect in late 2025.