Rohit Chopra, CFPB Director, testifies 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 that limits 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 sharp decline from the average fee of about $35 per transaction — or set fees at an amount that covers lenders' costs, or charge no fees while disclosing the loan's interest rate.
“For too long, big banks have exploited a legal loophole that has drained billions of dollars from America’s deposit accounts,” CFPB Director Rohit Chopra said in a statement. “The CFPB is cracking down on these excessive unwanted fees and is requiring major banks to clarify the interest rate they charge on overdraft loans.”
While overdraft fees have been a profitable item for the industry, generating $280 billion in revenue since 2000 according to the CFPB, banks' revenues from the service are declining. This is because lenders including JPMorgan Chase and Bank of America They have either reduced fees or limited the types of transactions they trigger, while some banks have dropped fees altogether.
The CFPB rule applies to banks and credit unions with at least $10 billion in assets.
The effort, part of a flurry of CFPB activity in the final days of the Biden administration, faces stiff opposition from U.S. banking groups that have successfully thwarted other efforts by the regulator. For example, a rule capping credit card late fees at $8 per incident that was scheduled to take effect in May has been put on hold in federal court.
The CFPB said its overdraft rule will go into 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 uncertain, thanks to industry opposition. But Trump is expected to name a new CFPB head in January, and he is unlikely to support Biden-era efforts to rein in banking activity.
Banking lobbyists have argued that the overdraft rule, first proposed in January as part of Biden's war on junk fees, would reduce access to overdraft services and could send customers to worse alternatives, such as payday loans. .
Later Thursday, the Consumer Bankers Association filed a lawsuit against the CFPB in Mississippi, claiming that the agency exceeded its authority and did not consider how its actions would affect consumers. The group chose a location known as friendly to accommodate tough federal regulators.
“While unfortunate, the CBA had no choice but to take legal action to confront the CFPB’s blatant legal overreach with its misguided rule to ensure consumers continue to access liquidity through overdraft services,” CBA President Lindsey Johnson said in a statement.
