The White House is cracking down on overdraft fees

NEW YORK (AP) — The Biden administration has finalized a rule limiting overdraft fees banks can charge, as part of the White House's campaign to reduce junk fees that hit consumers on everyday purchases, including banking services. President Joe Biden had called the fees, which can be as high as $35, “exploitative,” while the banking industry has lobbied extensively to keep the existing fee structures in place.

Under the finalized rule announced Thursday, banks will be able to choose from three options: they may charge a flat overdraft fee of $5, they may charge a fee that covers their costs and losses, or they may charge any fee so long as they disclose the terms of the overdraft loan the way they would for any other loan, typically expressed as an annual percentage rate, or APR.

While banks have cut back on overdraft fees in the past decade, the nation’s biggest banks still take in roughly $8 billion in the charges every year, according to data from the Consumer Financial Protection Bureau and bank public records. Currently, there is no cap on the overdraft fees that banks can legally charge.

Right now, when a bank temporarily lends a consumer money when their account has reached a zero balance, the consumer is typically responsible for paying back both the overdrawn amount and an additional fee, which can be more than the original amount charged. In one example often cited by opponents of the fees, a $3 cup of coffee can end up costing someone more than $30.