The Biden administration has finalized a rule that will cap overdraft fees at $5 for the largest banks and credit unions in an effort to save consumers an estimated $5 billion annually.
However, the rule faces potential court challenges and changes in the White House administration.
The big picture: The new rule applies to banks with assets exceeding $10 billion, encompassing about 150 of the 9,000 banks and credit unions in the U.S.
- Entities falling under this rule will have to comply by either capping overdraft fees at $5, setting them at an amount covering costs, or treating them as a line of credit providing disclosures similar to credit card sign-ups.
Go deeper: The Consumer Financial Protection Bureau (CFPB) sees the new rule as closing a loophole that allowed banks to use overdraft fees as loans, increasing consumer costs significantly.
- This rule aims to prevent consumers from losing access to banking services and having their credit ratings negatively impacted.
What they’re saying: “For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” CFPB director Rohit Chopra said 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.”
State of play: Large banks such as Chase, CitiBank, and Capital One have already eliminated overdraft fees under public scrutiny and pressure, while those retaining such fees average about $29 per overdraft.
