Crackdown on Overdraft Fees: The Biden administration sets new rules for banks

New York
CNN
—

It is owned by the Consumer Financial Protection Bureau finished a rule this will reduce overdraft fees charged to customers of big banks and credit unions, saving consumers as much as $5 billion a year.

The rule introduced Thursday would cap overdraft fees at $5 — a big savings from the $35 customers are typically charged. Total discount for families who pay fees It can save you about $225 a year, according to the CFPB. Additional options for banks would allow them to limit fees to amounts that cover costs, or to treat a loan like any other loan, disclosing terms such as interest rates.

“For too long, the biggest banks have exploited a legal loophole that has siphoned billions of dollars from Americans’ deposit accounts,” said bureau director Rohit Chopra. press release. “The CFPB is cracking down on these exorbitant junk fees and demanding that the big banks know about the interest rates they’re charging on bad debt.”

“Excessive commissions have placed burdens on American workers that actually add up, preventing them from getting ahead,” Lael Brainard, head of the National Economic Council, said in a statement. “That’s a real relief for families.”

Banking trade groups oppose the new rule and warn it could backfire. They even mention itd developing next-day grace periods and eliminating insufficient funds fees, two ways banks have innovated and competed in recent years to better serve consumers.

“(B) The Bureau has once again chosen to demonize highly regulated and transparent bank fees over its mission to help consumers. This rule, and accompanying government price controls, will make it significantly more difficult for banks to provide this valuable service to customers with few other options to cover essential payments. including those who have,” said Rob Nichols, president and CEO. American Bankers Association.

The proposal was the first announced in January As part of President Joe Biden’s crackdown on junk fees and an effort to bring more transparency to airline ticket surcharges, live eventscar rental, hotels, banking services, retirement tips and credit cards.

A deposit fee is charged when the bank or credit union covers a deposit account holder’s transaction – payment, withdrawal, debit or transfer when there are insufficient funds in that account.

Congress created the office after the 2008 financial crisis to protect consumers from financial abuse and to be the central agency for consumer financial protection authorities. He has faced a lot legal challenges to his rules and also to himself that he has had over the years. While this latest overdraft rule is set to go into effect on October 1, 2025, there is no guarantee that it will be, given the anticipated efforts to repeal it and Republican opposition when President-elect Trump takes office in January.

The ABA’s Nichols defined the rule as a “price cap,” which he said the CFPB lacked legal authority to impose.

And Lindsey Johnson, president and CEO of the Consumer Bankers Association, called the CFPB’s action Thursday a “flagrant overreach of its statutory authority” in a statement.

It could be a multifaceted battle ahead.

“We expect legislative, regulatory and legal challenges, with litigation (being) the best option to block the rule,” Jaret Seiberg, financial services policy analyst at TD Cowen Washington Research Group, said in his morning research note.

But, Seiberg added, “The problem for the banks is that we see the surplus limit aligning with GOP populism.”