The Consumer Financial Protection Bureau has released the final iteration of its rule that will cap the overdraft fees banks and credit unions can charge, a measure expected to save U.S. consumers $5 billion annually.
Under the new regulations, banks could either charge a $5 overdraft fee or limit the fee to an amount that covers the lender’s costs. In most cases, this represents a dramatic reduction from the $35 average overdraft fee. The rule would also treat overdraft loans similarly to credit cards, requiring lenders to disclose all associated interest rates and fees.
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” noted CFPB Director Rohit Chopra, in a statement. “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.”
Substantial Pushback
The rule, set to take effect in October 2025, will apply to banks and credit unions with assets of at least $10 billion in assets. While many of these institutions have already moved to reduce the frequency or amount of overdraft fees—or have eliminated them entirely—there has been substantial pushback to the CFPB’s regulations since they were proposed earlier this year.
Earlier this year, Rob Nichols, President and CEO of the American Bankers Association noted that “the proposal would make it significantly harder for banks to offer overdraft protection to customers, including those who have few, if any, other means to access needed liquidity. The CFPB is effectively proposing to take away overdraft protection from consumers who want and need it.”
A Safety Net
Without the safety net of overdraft protection, many in the banking industry argue that consumers facing medical emergencies or unexpected expenses may have to turn to less desirable alternatives like payday loans.
There have also been concerns among smaller banks and credit unions that, even though the rule only applies the largest institutions, they may face pressure to adopt similar standards to stay competitive.
