The Consumer Financial Protection Bureau (CFPB) on Thursday issued a Rule Limiting bank and credit union loan fees, it says, would save consumers $5 billion annually.
The rule, which applies to banks and credit unions with more than $10 billion in assets, gives these institutions three options: They can charge a $5 overdraft fee; Charge a fee that covers their costs or losses; Or continue to charge any amount, unless they disclose the terms of the overdraft loan and comply with lending laws.
Currently, banks can charge as much as they want in overdraft fees. According to the CFPB, they charge an average fee of about $35 whenever a customer withdraws funds from their account.
The CFPB expects this rule to save consumers $5 billion annually in overdraft fees, or $225 per household that pays overdraft fees.
“For too long, the biggest banks have taken advantage of legal loopholes, draining billions of dollars from Americans' deposit accounts,” CFPB Director Rohit Chopra said in a statement Thursday. “The CFPB is cracking down on these excessive junk fees and requiring the big banks to be transparent about the interest rates they are charging on overdraft loans.”
The rule closes a legal loophole that allows banks to circumvent laws that limit how much they can charge consumers in overdraft fees. These fees have increased consumer costs, and millions of consumers have lost access to banking services. According to the CFPB, the negative credit reporting also made it impossible for them to open other accounts.
Banks are expected to challenge this rule, which will take effect in October 2025.
It's part of the Biden administration's pledge to crack down on so-called unfair bank “junk fees.” The US Department of Transportation has also taken step Curbing junk fees charged by airlines.
US PIRG praised the CFPB's move, saying that previously banks had penalized those who could least afford overdraft fees, and this law protects their most vulnerable customers.
“In practice, overdraft fees act like high-cost credit, so it only makes sense to regulate excessive fees,” said Mike, PIRG's consumer campaigns director. The CFPB's rule makes overdraft fees more reasonable and more in line with banks' actual costs. Makes it conform.” Litt said in a statement.
National Economic Council Director Lael Brainard said in a statement that “For too long, exorbitant overdraft fees have plagued hard-working Americans with charges that actually add up, keeping them from getting ahead.”
He said, “The CFPB's new rule, which limits overdraft fees to a minimum of $5, is expected to save many families up to $225 per year. This is a real relief for families.”
However, the banking industry is expected to challenge the rule, which the American Bankers Association accuses of “undermining highly regulated and transparent bank fees.” The advocacy group said the rule “will make it significantly more difficult for banks to provide this valuable service to their customers, including those who have few other options for covering essential payments.”
TD Cowen analysts say they expect the rule to face legislative, regulatory and legal challenges. According to analysts, consumers' savings will come at the expense of revenues of banks, especially regional lending institutions.