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.
When I make a purchase using a debit card, it goes through this machine that accesses the debit network and my bank, on the other end, says “yes, the pin is correct and the chip looks good, and they have enough funds”. Similar process for credit cards. Why wouldn’t the transaction be processed at that point other than to create the deliberate risk that the person might overspend if you allow them to?