this post was submitted on 18 Jan 2024
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“Banks call it a service,” the president said. “I call it exploitation.”

The Biden administration unveiled a new rule Wednesday aimed at slashing bank overdraft fees to as low as $3, a move the president said would help end abusive practices by financial institutions.

Under the proposal, banks could continue to charge fees when a customer’s account falls below zero, but either at a price in line with the bank’s actual costs to administer the overdraft or at an established benchmark created by the new rule.

The Consumer Financial Protection Bureau (CFPB) proposed potential fees of $3, $6, $7 or $14 and is seeking feedback from banks and the public on what would be appropriate. Current overdraft fees often push $30 or more, taking a significant bite out of low-income accounts.

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[–] FuglyDuck@lemmy.world 9 points 9 months ago (1 children)

It doesn’t go far enough. Over draft fees happen on a checking account. Banks know exactly how much is available.

Certain banks are also notorious for charging overdraft fees when there was literally no overdraft.

[–] dhork@lemmy.world 9 points 9 months ago (1 children)

Certain banks are also notorious for charging overdraft fees when there was literally no overdraft.

There's an explanation for at least one way they do that. Certain transactions end up being "pre-authorized" for a larger amount before they settle. Gas stations are a common place for this: you swipe the card when you first get to the pump, then you pump, and then you pay the bill based on how much you pump. When the card is swiped, a "hold" gets put on your account for a large amount, perhaps $150, and then the charge goes through for the actual amount you paid.

When you pay by credit card, this hold goes against your available credit, and since most people are nowhere near their limit this ends up not being that big a deal. However, when you pay by debit this hold "freezes" actual cash in your bank account, which then can't be used for anything else and can cause you to overdraft while there is still money in your account. Tnis "freeze" may not actually be listed on your account anywhere. What's even worse is that the hold can last for days, and you may not even realize it.

Allow an overdraft fee to exist, and banks will find ways to make them happen. Period. There's no need for paragraphs of explanation for a concept so brutally simple, that furthermore has been proven.

Hell, obama addressed their predatory practices in the consumer protection act (iirc the acts name).