Overdraft Fees in Maine, Massachusetts May Soon Be Capped at $3
These days, largely due to the economy, many Americans are living paycheck-to-paycheck. As a result, more people find themselves coming down to the wire on their bank accounts.
Sometimes, mistakes happen. People take their bank accounts into the red.
If this has ever happened to you, you know that the really problem comes when you start getting slapped with overdraft fees. Depending on the bank you use, these fees can $30 (or more) per transaction done when your account is in the negative.
Years ago, I once bought a dollar menu lunch from a fast-food place. Because my account was low, that $2 meal ended up costing me $120.
Why do we have overdraft fees?
The overdraft fee system was put in place about three decades ago. The original idea was that it was meant to prevent customer embarrassment over bounced checks. Instead of failing to pay the person cashing the check, the bank pays the money owed, but charges the holder of the account a fee.
While they started out small, the fees have grown over the years. As we mentioned above, the overdraft fee varies from bank-to-bank, but the national average is $26.
Thanks to the Biden administration, those severe penalties may soon be a thing of the past.
Capping overdraft fees.
According to an article in the Washington Post, on Wednesday, the Consumer Financial Protection Bureau unveiled a new plan that could cap some of the charges as low as $3.
The new rule is meant to help low-income Americans stay financially stable. Not surprisingly, those who have limited income are the people who are most-likely to have their accounts go into the red.
According to industry insiders at the Consumer Financial Protection Bureau, banks make billions of dollars each year. According to the CFPB, overdraft charges generated nearly $9 billion in revenue for the industry in 2022.
The banks counter to the cap is that they rely on those fees as revenue for their business. They say that they need those high fees in order to cover their losses.
While it may be some time before the specific caps are locked-in, the hope is that the new rules will be in place by October of 2025.
The article goes on to explain that the proposal is part of a larger administration plan aimed at getting rid of what President Biden refers to as “junk fees”.