New Overdraft Rule Could Save Consumers Billions Annually

Stack of credit cards on a laptop keyboard.

The Consumer Financial Protection Bureau (CFPB) unveils a new rule to cap overdraft fees, potentially saving consumers billions annually.

At a Glance

CFPB proposes limiting overdraft fees to $5 or the bank’s actual costs
Rule targets banks with assets over $10 billion, effective October 1, 2025
Consumers could save an average of $225 per year
Banking industry opposes the rule, citing potential service limitations
Implementation faces uncertainty due to potential leadership changes

CFPB Takes Aim at “Junk Fees”

The Consumer Financial Protection Bureau (CFPB) has proposed a new regulation aimed at curbing excessive overdraft fees charged by large financial institutions. The rule, part of the Biden administration’s broader effort to address “junk fees,” would cap overdraft charges at $5 or limit them to the bank’s actual costs for covering overdraft payments. This move is expected to save consumers approximately $5 billion annually.

The regulation targets banks and credit unions with assets of $10 billion or more, affecting a significant portion of the banking industry. CFPB Director Rohit Chopra emphasized the need for this change, stating that large banks have exploited a legal loophole to drain billions from Americans’ deposit accounts.

Impact on Consumers and Banks

Currently, the typical overdraft fee hovers around $35. The CFPB’s proposed rule could result in substantial savings for households, with an estimated average of $225 per year. This reduction in fees comes as some major banks, including Bank of America, Citi, and Capital One, have already voluntarily reduced or eliminated overdraft fees. “Big banks love overdrafts. It is easy profit for them, but it is punishing for so many Americans, especially those who live paycheck to paycheck,” said Rohit Chopra.

However, the banking industry has voiced strong opposition to the proposed rule. The Consumer Bankers Association and other industry groups argue that it could limit access to overdraft services and potentially push consumers towards riskier alternatives like payday loans.

Implementation Challenges and Uncertainties

The CFPB’s rule faces several hurdles before it can be fully implemented. Set to take effect on October 1, 2025, its future remains uncertain due to potential changes in CFPB leadership under the incoming administration. The enforcement authority for the rule will fall to the new administration, raising questions about its long-term viability.

Banks and credit unions will have three options under the new rule: cap fees at $5, set fees to cover costs, or disclose terms if they profit from fees. This approach aims to increase transparency and give consumers more control over their banking choices. However, the banking industry is exploring all options to oppose the rule, including potential legal challenges.

A Changing Landscape for Overdraft Fees

The CFPB’s proposed rule represents a significant shift in the banking landscape. Since 2000, overdraft fees have generated $280 billion in revenue for banks. However, this revenue stream has been declining as public scrutiny and voluntary actions by some banks have led to reductions in these fees.

As the debate over the rule continues, consumers are advised to be aware of their banks’ overdraft policies. Director Chopra encourages consumers to consider alternatives, stating, “If your bank is charging you big overdraft fees or reordering your payments to enrich themselves, you need to break up with your bank. There are so many local banks, credit unions and others that are offering a better deal, and you should take your business elsewhere.”

The coming months will be crucial in determining the fate of this rule and its potential impact on both consumers and the banking industry. As the implementation date approaches, all eyes will be on the CFPB, the banking industry’s response, and the actions of the incoming administration in shaping the future of overdraft fees in America.