The final version of the rule restricting banks’ ability to impose overdraft fees was announced by the Consumer Financial Protection Bureau on Thursday. The rule is expected to save $5 billion a year for American consumers.
According to the regulator, banks may choose to charge $5 for overdrafts, which would be a significant decrease from the typical fee of about $35 per transaction, or they could limit the fee to a level that would cover the costs of the lender or charge any fee while revealing the loan’s interest rate.
CFPB Director Rohit Chopra stated in a statement that the biggest banks have been taking advantage of a legal loophole for far too long, draining billions of dollars from American deposit accounts. In addition to forcing large banks to disclose the interest rates they charge on overdraft loans, the CFPB is taking action against these exorbitant garbage fees.
Bank revenue from overdraft fees has been declining, despite the fact that the industry has made $280 billion from the service since 2000, according to the CFPB. This is because some banks have eliminated the fee entirely, while others, including JPMorgan Chase and Bank of America, have either lowered the fees or restricted the kinds of transactions that result in them.
Banks and credit unions with assets of at least $10 billion are subject to the CFPB rule.
The endeavor, which is a part of the CFPB’s rush of action in the final days of the Biden administration, is met with strong resistance from American banking associations that have effectively thwarted the regulator’s previous attempts. For example, a rule that was supposed to go into effect in May and cap credit card late penalties at $8 per incident has been halted in federal court.
Although its future is uncertain, the CFPB stated that the overdraft rule will go into force on October 1, 2025.
Due to industry opposition, the overdraft rule’s future would have been uncertain even prior to Donald Trump’s election triumph last month. However, Trump is anticipated to appoint a new CFPB director next month who is unlikely to back the Biden administration’s attempts to control banking operations.
The overdraft rule, which was initially proposed in January as part of Biden’s war on junk fees, has been criticized by bank lobbying organizations for potentially restricting access to overdraft services and driving consumers to less desirable options like payday loans.
On Thursday, the Consumer Bankers Association announced that it was looking into every possible way to challenge the rule.
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