NEW YORK (NEWSnet/AP) — The cost to a customer for overdrawing a bank account could drop to as little as $3 per occasion under a proposal announced by the White House.

This step is the latest move by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.

If the rule is adopted, the new regulations would go into effect in the autumn of 2025.

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.

The rules would apply only to the largest banks with more than $10 billion in assets, or about 175 banks that make up most of the financial institutions Americans do business with. Smaller banks and credit unions would be exempt.

Under the proposed rule, banks could only charge customers what it would cost them to break even on providing overdraft services. This would require banks to show the Consumer Financial Protection Bureau their actual costs.

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 during growing popularity of debit cards.

“For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines," President Joe Biden said in a statement. "Banks call it a service — I call it exploitation.”

The CFPB has presented research that overdraft fees overwhelmingly impact the same households repeatedly during a year – often those who are already lower income.

Alternatively, banks could use a benchmark fee that would apply across all affected financial institutions. Regulators proposed several fees — $3, $6, $7 and $14 — and will gather industry and public input on the most appropriate amount. The CFPB says it arrived at these figures by looking at how much it cost banks to recoup losses from accounts that went negative and were never paid back.

Banks could also provide small lines of credit to allow customers to overdraft, a service that would operate like a credit card.

According to research conducted by Bankrate last August, the average overdraft fee was $26.61. Some banks charge as much as $39. The nation’s biggest banks still take in roughly $8 billion in overdraft fees every year, according to data from the CFPB and banks' public records.

Biden has made the elimination of “junk fees” one of the cornerstones of his administration’s economic agenda heading into the 2024 election. Overdraft fees are included in this campaign.

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