Overview

• The Biden administration has proposed a rule change that would classify overdraft fees as a type of loan, giving banks two options for providing overdraft services.
• Banks can continue offering unregulated overdraft services, but they can’t profit off them. They can only charge as much as it costs them to break even on the transaction, and they have to prove to the government how much it costs. If they prefer to avoid the more complicated work of providing such a cost breakdown, banks could opt to charge a flat fee that’s pre-approved by the government. That fee has yet to be determined; the proposal says it could be as low as $3, but it could be as high as $14.
• The other option allows banks to make a profit from providing overdraft services, but they have to treat them as loans. That means following all the rules for loans, such as disclosing the interest rate, which would allow customers to price shop.
• Rule changes like this require public comment before finalizing, and the administration doesn't expect the changes to take effect until October of 2025.
• If Biden loses the 2024 presidential election, the next president could simply stop this change from taking place. Some Republicans have already come out against the proposal, claiming it would restrict consumer choice.