Feds propose another new rule to rein in bank overdraft fees


Under the proposal, fees could go as low as $3

Just like ninjas in the middle of the night, overdraft fees are sneakily draining hundreds of dollars from hardworking families each month.

But if you ask anyone at the White House or the Consumer Financial Protection Bureau (CFPB), these aren't harmless pranks perpetrated by banks. Instead, they’re burdening Americans already on tight budgets.

According to the administration, overdraft fees are nothing more than exploitation and come what may, they’re taking yet another shot to limit the practice.

On Wednesday, the CFPB proposed a rule to rein in excessive overdraft fees – a gambit that would close a loophole that exempts overdraft lending services in the Truth in Lending Act and other consumer financial protection laws. 

The CFPB has been busy trying to find the one single move that works its magic. The agency had already ordered Wells Fargo to pay an unprecedented $3.7 billion for overdoing it with overdrafts. It even tried to play nice and wrote up guidance so banks could avoid fines by doing the right thing. Still, nothing happened. 

As things stand now, consumers are paying nearly $9 billion in overdraft fees – more than $2.3 billion to just 10 large banks in 2023.

What would change

As things stand now, many of the larger banks commonly charge about $35 per overdraft. Those banks include JP Morgan/Chase, Wells Fargo, Truist, and Regions Bank.

Under the proposal, large banks could still charge overdraft fees, but not anywhere near $35, and only if they agree to comply with lending laws, including disclosing any applicable interest rate.

What appears to be preferable in the CFPB’s mind is a reasonable fee to recoup their costs at an established benchmark. However, they’d have to show their data and prove their reasons for the fee.

The agency said it’s flexible on the fee that banks choose and proposed benchmarks of $3, $6, $7, or $14 -- less than half of what customers are paying now.

U.S. Public Interest Research Group's (PIRG) consumer campaign director Mike Litt said his group fully supports the proposed rule.

“It’s long overdue to rein in overdraft fees," he said. If the CFPB’s proposed rule takes effect, overdraft fees will be more reasonable and in line with the actual costs to banks."

In practice, Litt said overdraft fees have functioned as "high-cost credit," so it only makes sense to regulate excessive fees as such. 

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