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The Consumer Financial Protection Bureau announced Thursday that it has finalized new rules limiting the fees that banks can charge when customers overdraw their accounts.
In a statement, CFPB director Rohit Chopra called overdraft fees a “legal loophole” that have drained billions of dollars from Americans’ bank accounts.
“The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans,” Chopra said.
Under Chopra’s leadership during the Biden administration, the CFPB has taken a number of aggressive actions to curb practices such as data harvesting and the use of medical debt in credit reports, and going after financial institutions for what they call “junk fees.”
The move comes less than two months before President-elect Donald Trump is scheduled to take office, a change in administration that could bring sweeping changes to consumer protection policy. Trump and congressional Republicans are already weighing substantial changes to the agency.
The new rule gives banks several options for how they can approach overdraft. The banks can charge $5, offer overdraft protection as a courtesy, or extend a loan with an up-front interest rate. It applies to banks with at least $10 billion in assets.
The Consumer Bankers Association, an industry group, has said it is “exploring all potential options” regarding overdraft fees. The group argued that overdraft services are important to Americans who lack access to credit, and says getting rid of them will drive consumers toward worse options like high-interest payday loans.
Overdraft fees originated during a time when consumers wrote and cashed checks more frequently—so that the checks would clear instead of bouncing, if there was an issue of timing—but banks steadily increased the fees in the first two decades of the 2000s. The fees disproportionately affect banks’ most cash-strapped consumers. A majority of overdrafts (70%) are charged to customers with average account balances between $237 and $439, according to the CFPB.
The agency estimates the new rule would save consumers about $5 billion in annual overdraft fees, or $225 per household that typically experiences the fees.
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