Overdraft fees could drop to as low as $3 under new Biden proposal
Overdraft fees could drop to as low as $3 under new Biden proposal
The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest move by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.
The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest effort by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.
The change could potentially eliminate billions of dollars in fee revenue for the nation’s biggest banks, which were gearing up for a battle even before Wednesday’s announcement. Exactly how much revenue depends on which version of the new regulation is adopted.
Banks charge a customer an overdraft fee if their bank account balance falls below zero. Overdraft started as a courtesy offered to some customers when paper checks used to take days to clear, but proliferated thanks to the growing popularity of debit cards.
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Banks LOVE overdraft fees. Not just big banks. Even your local bank or credit union pays close attention to that "Fee Income" line item which overdraft fees are part of. Fee income is unique in that it doesn't require an increase in assets (by making loans) to generate. It's not technically "free" money for the bank but it's dirt cheap. It's a smaller but also not insignificant source of revenue.
The main problem with overdraft fees is that they are inherently predatory. They automatically target poor(er) people who are more prone to spending money they don't have and are unable to secure cheaper credit. The average overdraft user tends to use it repeatedly and consistently. Overdraft fees are nothing more than an extremely high interest loan. Much like payday lending, it can create a cycle that the borrower is unable to get out of. Best case scenario, the bank is aware of this but has little incentive to do anything about it. I actually worked for a bank at one time that was intentionally lenient with their overdraft policies. It was a good move for the customers but it didn't eliminate the debt cycle.
Banks are required to offer "counseling" to people who routinely overdraw their accounts but that usually is nothing more than a letter that gets mailed out to the customer and nothing more.
Some banks like to be extra shitbaggy about it and will actively structure their policies and batch processing procedures to maximize overdraft fees. Doing things like posting debits to the customers account before credits intentionally on the same day and maintaining a policy that that qualifies as an overdraft. To me, that's just evil and should be illegal.
I think there's multiple issues with overdraft "protection", one of which are excessive fees. Overdraft "protection" routinely contributes to a cycle of bad debt for people who often can't afford to pay their bills much less repay debt with incredibly high interest rates. Some banks justify it as a service that "helps" their customers. I think it's as helpful as a pack of cigarettes. Yeah, it's technically the customers choice to use it. And they shouldn't. It's a really bad deal for them. But more of the responsibility is on the banks here because they know the statistics. They know the mess that they're contributing to. Best case scenario, they turn a blind eye because $$$.
On the other side, consumers as a whole need better financial education. Many of them don't understand that they could do a lot with the money they're spending on fees and interest. Consumers also need to be better about choosing who they do business with and asking questions. Banks are required to disclose all their fees and account policies. Ask for them and ask for an explanation if you don't understand them.
Lastly, don't do business with banks, or anyone for that matter, who clearly has no interest in the well being of their customers. I'm going to pick on Wells Fargo specifically because, ...well, If you don't know what kind of company Wells Fargo is, then you have been living under a rock for a long time. Wells Fargo shouldn't even exist. Their repeated, flagrant criminal activities, violations of the law, and disregard for the well being of their customers should have seen them run out of banking entirely. And they're not the only bank like this, but they're the most egregious. Instead, they still exist because people keep doing business with them. You're a lot more likely to be treated better by a bank or credit union that views you as more than just a random number.
This was me a few years back, pretty much guaranteed to get a few overdrafts per month, just the cost of being poor. But I use a credit union and they actually called to ask if I would like to cancel the "overdraft protection" so that my card would simply be declined if I didn't have the funds. I said no... getting my insurance canceled or being embarrassed at the grocery store didn't seem like a better plan than consistent over draft fees. It's very hard to live right on the margin like that.
Lucky you. I keep trying to get that for my kids, so they learn early not to overdraft with no luck. At one point I had managed to get that set up for my accounts but then got a little ahead so use another account for overdraft protection
It was me too at one point. Spending a few years in banking was very educational and changed my whole perspective on money. Bankers treat money in a way you just don't see anywhere else, since money is THE commodity in banking.
In short: the value of a dollar is not in the dollar itself. The value is in what you can get out of that dollar. Every dollar you have is either A.) Earning you money, B.) Doing Nothing, or C.) Costing you money.
The worst possible thing anyone can do, in my opinion, is to not know where their money is going. Tracking finances is intimidating to a lot of people. It forces them to face situations that can be filled with anxiety. Especially when they don't have a lot of money. But it's a critically important step to financial wellness. You can't make decisions about how to spend your money when you can't see what you're doing with it.
I started tracking my finances a decade ago and I will tell anyone that the money I've spent on personal finance/accounting software is one of the best investments I've ever made. That small expense has paid for itself many times over. Whatever system you use doesn't have to be super complex or expensive. All that matters is that it helps you achieve your goals.