By Jon Jackson
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President Joe Biden's administration has finalized a rule that limits overdraft fees banks can charge.
The rule, announced on Thursday, places a cap on overdraft fees at $5. Biden has said that overdraft fees, which can reach as much as $35, are "exploitative."
"For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans' deposit accounts," Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), said in a statement.
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Chopra added, "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."
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Details of the Overdraft Rule
The new rule allows banks to charge a flat overdraft fee of $5. It also gives banks the option to either charge any fee if they disclose the terms like they do for any other loan or to charge a fee that covers their costs.
Presently, banks have no limits on overdraft fees they can charge. According to the CFPB, the nation's largest banks make approximately $8 billon a year in the charges.
The finalized rule, which is scheduled to go into effect in October 2025, applies to banks and credit unions with more than $10 billion in assets. In its press release, the CFPB said the rule will result in up to $5 billion in annual overdraft fee savings to consumers, or $225 per household for those who pay overdraft fees.
What Has Trump Said About Overdraft Fees?
President-elect Donald Trump has not indicated what he would do—if anything—regarding the new overdraft fees rule. However, some of his advisers have discussed eliminating the CFPB.
If Trump chooses to keep the CFPB, the new head of the bureau he chooses could decide not to enforce the overdraft rule. According to The New York Times, some members of the banking industry believe the Trump administration could rescind the rule.
Congress, which will have a Republican majorities in both the House and the Senate next year, could also challenge the rule.
How Have Banks Responded to the Rule?
The banking industry has lobbied to keep the current overdraft fee structures in place, and banks have sued the CFPB in the past over caps on credit card late fees.
In an April letter to the CFPB when the bureau was considering the overdraft proposal, the American Bankers Association warned about negative consequences that could come from a change fee limits.
"It would effectively bring an end to overdraft services for millions of consumers who—following receipt of a consumer-tested disclosure—choose to use to the product to cover emergency expenses and other liquidity shortfalls, all to advance the Administration's political campaign against 'junk fees,'" the letter read.
This article includes reporting from The Associated Press.
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