How the Biden administration aims to take down junk fees that hit millions of Americans

The Biden administration has proposed new regulations to tackle junk fees, those hidden or misleading charges that boost the cost of things like concert tickets, hotel rooms and even bank accounts by tens of billions of dollars per year. Cora Lewis, a business reporter for the Associated Press, joins Ali Rogin to discuss.
John Yang:
The Biden administration has proposed new regulations that take aim at junk fees, those hidden or misleading charges that boost the cost of things like concert tickets, hotel rooms, even bank accounts by tens of billion dollars a year. Ali Rogin has the details.
Ali Rogin:
$8 billion, that’s how much money the nation’s biggest banks take in roughly every year in overdraft fees. The average dollar amount for overdrawing a bank account has come down in recent years. But in 2023, the average fee was still more than $26. And those with the least ability to pay are the hardest hit.
In 2023, 34 percent of households making less than $65,000 a year were charged with an overdraft or insufficient funds fee.
Cora Lewis is a business reporter for the Associated Press Corps. Thank you for joining us. How is the Biden administration looking to tackle these fees?
Cora Lewis, The Associated Press:
The Biden administration is really using the Consumer Financial Protection Bureau to take aim at these fees, as well as the Federal Trade Commission. But when it comes to overdraft fees, they’re trying to use new rules and regulations to limit the amount that banks can charge consumers when they overdraft.
What they’re proposing is a new rule that would require banks to show what their costs are to consumers when they enact these fees. Banks really aren’t interested in doing that. So the CFPB is giving them an alternative, which is to lower the fees to as little as $3, but possibly six, seven or $14 as benchmark fees, which are still much, much lower than the fees as they currently stand.
Ali Rogin:
And why is the Biden administration taking on junk fees writ large right now? Why is this the moment that they’ve decided to do all this?
Cora Lewis:
I think right now, a lot of the pandemic era stimulus is ending, inflation has been high for a while, people are relying on credit cards. The average consumer is really feeling the pinch and has spent down their savings and junk fees really hit households who can least afford them.
Overdraft fees typically hit consumers who have less than $500 in a checking account. And oftentimes the same households that experience overdraft fees will experience them multiple times per year. They might be living paycheck to paycheck or relying on Social Security or other benefits.
So $35, when you’re already really working hard to budget is a significant amount.
Ali Rogin:
Absolutely. Now, you pointed out some really good reasons why this would be happening now the pandemic among them. But of course, these fees have been around since the 1990s. Why have they been allowed to continue and to get so much bigger over so much time?
Cora Lewis:
Yeah, it’s really been an insidious growth and they have come down in recent years Bank of America in particular has reduced their fees. I think partly because the banks were taking a reputational hit. And they were finding it harder and harder to justify these increasingly punitive fees. But regulation seems to be needed to bring them even more in line with what’s reasonable.
Ali Rogin:
So now, what are banks saying about this?
Cora Lewis:
Well, the banks in recent years have started making huge amounts of money off of these fees. And so as you can imagine, there’s a strong lobbying effort against the proposed regulations. And some smaller banks like credit unions, and community banks, in particular rely very heavily on these fees and are not interested in them being reined in by the White House.
Ali Rogin:
Yeah, and that seems to be one of the lines that you hear a lot of saying this could really detrimentally affect community banks, credit unions, banks that support the military. So, how is that lending on the other Aside of the issue among the people that want to get rid of these fees?
Cora Lewis:
I would say that consumer advocates would argue that if you are relying on these fees to run your bank and to support your business model, then you’re not operating as a bank, you’re really operating as a lender, and you’re making these small loans with extremely exorbitant rates. And you should be regulated as a lender in that case and not as a bank.
Ali Rogin:
And of course, these new rules are going into effect through the CFPB through the administration not going through Congress. How easily could they be undone by subsequent administration?
Cora Lewis:
That’s, I believe, also a hope of the banking industry is that a Republican president or a Republican Congress could really undo these regulations, and that if they stall long enough, or if there’s a different administration, they could be undone very easily.
Ali Rogin:
Cora Lewis, who’s covering this issue for the Associated Press, thank you so much for breaking it down.
Cora Lewis:
Thanks for having me.