The Consumer Financial Protection Bureau (CFPB) has announced a final rule that addresses the overdraft system for consumers who need credit beyond an existing balance.
The new rule allows large banks several options for overdrafts:
- They can choose to charge $5;
- To offer overdraft as a courtesy by charging a fee that covers no more than costs or losses;
- Or continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate.
The CFPB said the final rule will add up to $5 billion in annual overdraft fee savings to consumers.
CFPB Director Rohit Chopra said, “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.”
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts.”
The overdraft final rule is slated to take effect on October 1, 2025.
While liberal-leaning groups were pleased with the development, the banking industry did not support the changes.
The Independent Community Bankers of America (ICBA) “strongly opposed” the overdraft rules.
“ICBA continues to strongly oppose the CFPB’s overdraft rule, which exceeds the bureau’s statutory authority under the Truth in Lending Act, violates existing regulations that have determined overdrafts are not extensions of credit, and was released at the 11th hour of the outgoing administration. We call on the incoming administration and Congress to overturn this faulty rulemaking, which will have a detrimental impact on consumers who rely on this service, to ensure continued access to overdraft services. And we look forward to continuing to work with policymakers to minimize the negative impact of this and other CFPB policies on consumers and local communities.”
The ICBA said that if enacted, the overdraft rules would negatively affect customers and businesses, who would “experience the harsh realities of rejected payments.”
The Republican-controlled House Financial Services Committee said via X that this “eleventh-hour final rule governing overdraft fees is a bad faith attempt to extend its authority based on faulty economics and threatens to harm the very consumers the agency is tasked with protecting.”
“This is the latest in a series of last-minute efforts to assert the agency’s influence even as other regulators have vowed to halt rulemakings in anticipation of the coming administration. Today, Director Chopra showed why he is not fit to lead the CFPB into 2025.”
With the new overdraft rule expected to go into effect in late 2025, there is plenty of time for a regulatory or legislative change to the CFPB’s rulemaking.