The US Consumer Financial Protection Bureau (CFPB) has announced a final rule limiting banks’ ability to charge overdraft fees, which are expected to save American consumers $5 billion annually. The new regulation will take effect October 1, 2025.
Under the rule, banks can choose to charge a flat fee of $5 for overdrafts or limit the fee to cover lenders’ costs. Alternatively, they can charge any fee while disclosing the interest rate on the loan.
The CFPB claims that big banks have exploited a loophole to drain billions of dollars from deposit accounts, and this new rule will crack down on excessive junk fees. The regulator has stated that it’s requiring banks to come clean about the interest rate they’re charging on overdraft loans.
Overdraft fees were previously a lucrative line item for the industry, generating $280 billion in revenue since 2000. However, many lenders have reduced or eliminated these fees in recent years. The CFPB rule applies to banks and credit unions with at least $10 billion in assets.
The move is part of a broader effort from the Biden administration to rein in banking activity. Industry groups, however, are opposed to the new regulation, arguing that it would reduce access to overdraft services and lead customers to worse alternatives like payday loans.
As expected, the Consumer Bankers Association has filed a lawsuit against the CFPB, claiming that the agency exceeded its authority and didn’t consider the impact on consumers.
Source: https://www.cnbc.com/2024/12/12/cfpb-bank-overdraft-fees-rule.html