Rohit Chopra, director of the CFPB, testified during a House Financial Services Committee hearing on June 14, 2023.
Tom Williams Cq-roll Call, Inc. | Getty Images
The Consumer Financial Protection Bureau on Thursday announced the final version of a rule limiting banks’ ability to charge overdraft fees. It says the rule will save American consumers $5 billion annually.
The regulator said banks could choose to charge $5 for overdrafts — a steep drop from the average fee of about $35 per transaction — or limit the fee to an amount that covers lenders’ costs, or charge no fee while disclosing interest rates. . loan
“For too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” CFPB Director Rohit Chopra said in a statement. “The CFPB is cracking down on these exorbitant junk fees and the big banks need to come clean about the interest rates they charge on overdraft loans.”
While overdraft fees have been a profitable line item for the industry, generating $280 billion in revenue since 2000, according to the CFPB, banks’ revenue from the service has been declining. Because including lenders JP Morgan Chase And Bank of America have either reduced the fees or limited the types of transactions that trigger them, while some banks have eliminated the fees altogether.
The CFPB rule applies to banks and credit unions with at least $10 billion in assets.
Part of the CFPB’s actions in the waning days of the Biden administration, the effort has faced stiff opposition from U.S. banking groups that have successfully blocked the regulator’s other efforts. For example, the $8 per incident credit card late fee set to go into effect in May has been held up in federal court.
The CFPB said its overdraft rule would take effect on Oct. 1, 2025, though the rule’s ultimate fate is unclear.
Even before Donald Trump won the presidential election in November, the fate of the overdraft rule was unclear, thanks to industry pushback. But Trump is expected to install a new CFPB chief in January who is unlikely to support Biden-era efforts to rein in banking activity.
Bank lobbying groups have argued that the overdraft rule, which was first proposed in January as part of Biden’s fight against junk fees, would reduce access to overdraft services and could send customers to worse options like payday loans.
Later Thursday, the Consumer Bankers Association filed a lawsuit against the CFPB in Mississippi, claiming the agency exceeded its authority and did not consider how its actions would affect consumers. The group chose a location known to be friendly to challenges from federal regulators.
“While this is unfortunate, CBA had no choice but to take legal action against the CFPB’s blatant regulatory overreach to ensure consumers continued access to liquidity through overdraft services,” CBA President Lindsey Johnson said in a statement.
