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President Biden has announced a proposal to dramatically reduce the cost of overdrawing a bank account. The initiative targets what it views as unnecessary financial burdens on consumers, particularly those living paycheck to paycheck.

The proposed regulation could cap the overdrawn account fee at $3, which would represent a significant difference from the current banking landscape where fees can soar to as much as $39. "When companies sneak hidden junk fees into families' bills, it can take hundreds of dollars a month out of their pockets and make it harder to make ends meet," Biden stated. "That might not matter to the wealthy, but it's real money to hardworking families-and it's just plain wrong."

The Consumer Financial Protection Bureau (CFPB) outlined two approaches for banks to calculate overdraft fees. The first requires banks to charge customers only the cost of overdraft services, with a mandate to disclose the costs to the CFPB transparently. Alternatively, a benchmark fee could be implemented across all affected financial institutions, with proposed figures of $3, $6, $7, and $14. Officials said public input and industry feedback will determine the final fee structure.

Overdraft fees have long been contentious, with research indicating that the average fee is $26.61. The CFPB and public records from banks reveal that major banks still generate approximately $8 billion in overdraft fees annually. Experts reported that the burden of these fees disproportionately affects low-income households and communities of color.

"This is about the companies that rip off hardworking Americans simply because they can," added Biden, who has made eliminating what he calls "junk fees" a cornerstone of his economic agenda leading into the 2024 election. "Banks call it a service-I call it exploitation. Today's proposal would cut the average overdraft fee by more than half, saving the typical American family that pays these fees $150 a year. That would add up to save families $3.5 billion every year. Unfortunately, some Republicans in Congress continue to defend these exploitative fees."

The proposed rules would apply to banks with assets exceeding $10 billion, impacting approximately 175 large financial institutions. "This is just one part of my administration's broader plan to lower costs for hardworking families," Biden asserted. "We're going to continue doing everything in our power to bring down costs and grow our economy from the middle out and bottom up, while standing up to extreme Republican attempts to provide more giveaways to the wealthy and big corporations and undermine competition."

Should the rule be adopted and withstand political and legal challenges, the new regulations could take effect late in 2025.