Overdraft fees would be slashed under new Biden administration rule. What you need to know

If your bank account regularly flirts with negative balances, or you’re just bad at keeping track of your debit card swipes, you’ve probably felt the sting of one of the banking industry’s favorite charges: overdraft fees. Under the overdraft rule, large banks and credit unions would have three options when setting fees: They could charge an amount based on the cost of the service, including losses from it; they could charge $5 per overdraft; or they could charge an amount that would generate a profit, but only if they disclosed the interest rate and other terms in advance and sent periodic statements to customers. “In practice, overdraft fees have functioned as high-cost credit, so it only makes sense to regulate excessive fees as such,” said Mike Litt, director of the Public Interest Research Group’s consumer campaign. He also argued that the bureau didn’t have the legal authority to cap the price of overdraft fees, adding that the rule “should not be allowed to go into effect.” Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending, responded that banks can continue offering overdraft protection as a form of credit, but they’ll have to comply with the same rules that apply to other types of credit. Senate Bill 1075 limits state-chartered banks and credit unions from charging overdraft fees larger than the amount set by the CFPB or $14, whichever is lower.