The Consumer Financial Protection Bureau is set to release a final rule capping overdraft fees at $5 for the largest banks.
Under a final rule to be released Thursday, the CFPB plans to reclassify overdraft fees as loans subject to interest rate disclosures under the Truth in Lending Act. The rule would apply only to the largest banks and credit unions with more than $10 billion of assets, impacting roughly 175 financial institutions.
The overdraft rule is certain to attract a legal challenge from bank trade groups. It could also be targeted for repeal next year by Republicans under the Congressional Review Act, which allows Congress to nullify a rule within 60 legislative days of its finalization.
CFPB Director Rohit Chopra has lambasted banks for charging overdraft fees as high as $35. He said overdraft fees were never meant to be a major profit driver.
"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," Chopra said in a press release.
The final rule gives banks three options on how to comply based on whether they want to profit from overdraft fees.
Under the final rule, large banks can cap their overdraft fees at $5, a level commensurate with what the CFPB estimates would be necessary to cover the service's cost to banks. Alternatively, banks can cap their fees at an amount that covers costs and losses, rendering overdraft a "convenience service rather than a profit center."
Finally, banks could charge higher fees as long as they disclose the terms of their overdraft fees just like other loans. Overdraft pricing, Chopra has said, would require banks to disclose annual percentage rates .
"For financial institutions that wish to profit from overdraft lending, they may do so by complying with the standard requirements governing other loans, like credit cards," the CFPB said. "This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually."
Rob Nichols, president and CEO of the American Bankers Association, said the CFPB is ignoring that a majority of Americans value overdraft protection and do not want it to go away.
"By taking this action, the Bureau has once again chosen to prioritize demonizing highly regulated and transparent bank fees over its mission to help consumers," Nichols said. "This rule, and the government price controls that accompany it, will make it significantly harder for banks to offer this valuable service to their customers, including those who have few other options to cover essential payments."
The CFPB's final rule differs from that would have set a benchmark fee of $3, $6, $7 or $14. Banks said in comment letters on the proposal that they would be forced to restrict credit, impose higher minimum balance requirements and limit the availability of free or low-cost deposit accounts. The proposed rule likewise was limited to depository institutions with more than $10 billion of assets.
The rule comes two years after many large banks altogether. The CFPB said that consumers paid more than $5.8 billion in overdraft fees in 2023, down from $12.6 billion in 2019.
Chopra has long claimed that banks were given an exemption on overdraft more than 50 years ago when they were exempt from the Truth in Lending Act. The Federal Reserve Board exempted banks from TILA protections in 1969.
"For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans' deposit accounts," Chopra said in a press release.
Bank trade groups have said the CFPB's interpretation of TILA is not supported in the act's statutory language.
The rule is expected to save consumers $225 per household or $5 billion a year, the CFPB said. The final rule will take effect on Oct. 1, 2025.