The Consumer Financial Protection Bureau announced a new rule proposal that would limit overdraft fees banks charge on consumers.
The rules would apply to most large banks and lenders — those holding at least $10 billion in assets.
Standard overdraft fees have generally been $35. The new rules give banks the option to charge a break-even fee or a benchmark fee ranging from $3 to $14. Another option would be to have banks treat overdraft loans like other forms of credit, where banks could charge interest.
The rule changes come as some banks have already made changes to overdraft fees to appease the Biden administration. In 2022, Bank of America reduced its overdraft fees from $35 to $10. The decision to lower fees came as the CFPB fined the bank over $250 million for allegedly imposing illegal fees and withholding promised rewards.
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Bank of America double-dipped customers by charging them $35 fees each time the bank declined to make a transaction due to insufficient funds, the CFPB said. The CFPB said if customers attempted to make the same transaction again, Bank of America would impose the fee a second time.
Citigroup announced it was eliminating overdraft fees in 2022. Customers could either have money automatically transferred from a savings account to cover the overdraft or have funds taken from a line of credit.
President Joe Biden has been among those calling to rein in overdraft fees.
"For too long, some banks have charged exorbitant overdraft fees — sometimes $30 or more — that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines. Banks call it a service — I call it exploitation," President Biden said in a statement. "Today’s proposal would cut the average overdraft fee by more than half, saving the typical American family that pays these fees $150 a year. That would add up to save families $3.5 billion every year."
Some Senate Republicans have suggested past efforts by the CFPB and Biden administration to curb overdraft fees have gone too far.
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"The CFPB has launched a relentless smear campaign against banks that offer optional overdraft services to their customers," a group of Republican senators on the Senate Banking Committee wrote in 2022."With overdraft protection, consumers willingly agree to pay a fee for the product’s flexibility and to have an alternative to short-term loans, and under current regulations, customers must affirmatively opt-in to the service after banks have provided them with a description of the product and fees. In addition, prohibiting customers from agreeing to pay for a product means that, inevitably, it will either become unavailable or the bank will make up for lost fees and cover the costs of the product by charging higher prices for other products, such as checking accounts."
The American Bankers Association also opposed additional restrictions to the fees it can impose.
"Sixty-three percent of consumers think it’s reasonable for banks to charge a fee for an overdraft, as opposed to only 24% who think it’s unreasonable," said American Banking Association President Rob Nichols. "Next time, we hope the CFPB recognizes the value Americans say they receive from overdraft programs rather than demonizing a financial product consumers clearly appreciate.”
The CFPB said the new rules are about giving consumers clarity and reducing surprises.
"Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail," said CFPB Director Rohit Chopra. "Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine."
The CFPB could finalize the rule on April 1, and if approved, the rule could be enforced on Oct. 1, 2025.
