The Consumer Financial Protection Bureau proposed a rule on Wednesday that would sharply limit overdraft fees at America’s largest banks and credit unions, a change that the agency estimates could save families $3.5 billion a year in fees. Can be saved.
The proposal, which must go through a comment period and won’t take effect until at least the end of 2025, aims to eliminate the $35 overdraft fee that has become standard at many banks.
The Bureau’s rule will give banks some options for setting lower fees. They may charge a break-even fee based on the individual bank’s own costs or a benchmark fee set by the bureau. The agency has proposed a range of $3 to $14 for the benchmark.
Alternatively, banks may treat the overdraft as a line of credit and provide the disclosures required by the Truth in Lending Act, including interest rates.
“Decades ago, overdraft loans were given special treatment to make it easier for banks to cover paper checks that were often sent through the mail,” said Rohit Chopra, director of the consumer bureau. “Today, we are proposing rules to close a long-standing loophole that allowed many big banks to turn overdrafts into a giant junk fee harvesting machine.”
The proposed rule would apply only to institutions with assets of $10 billion or more, a category that includes about 175 of the country’s more than 9,000 banks and credit unions. These large providers collect about two-thirds of total overdraft fee revenue, the bureau said.
The Consumer Bureau has been laying the groundwork for more than a decade to curb overdraft fees, releasing reports analyzing the fees and discussing its concerns with banking industry executives and trade groups.
Anticipating action, some big banks have already cut their fees. In 2022, Citigroup eliminated the fee and Bank of America reduced its fee from $35 to $10. Consumers paid $7.7 billion in overdraft fees that year, down from $12.6 billion in 2019, according to consumer bureau estimates.
Banking trade groups are strongly opposed to tighter overdraft rules. “Overdraft protection fees are clearly disclosed, highly regulated and provide a service that most consumers value,” Rob Nichols, chief executive of the American Bankers Association, said last month.
His group and two others sent a letter to Mr. Chopra This month the Bureau has been urged to convene a small-business review panel to comment on the rule, a step the Bureau is required to take before adopting rules that could substantially impact small companies.
“Regardless of which banks are directly subject to the Bureau’s rule, all banks will face market pressure to conform their practices to the Bureau’s rule,” the trade groups wrote.
The bureau said this week that it would not convene that requested panel, because its rule would apply only to big banks and credit unions.
Consumer advocates praised the proposal. “Overdraft fees are not so much a useful service as a lucrative profit center that is largely underwritten by economically disadvantaged consumers,” said Carter Dougherty, a spokesman for Americans for Financial Reform. “This reform is a step towards making banks provide good service and doing away with gotcha fees.”
The bureau will accept public comments on the proposed rule until April 1, after which it can begin the final stages of adopting the changes.