CFPB Revises Overdraft Fee Rule for Major U.S. Banks

On By Littum

The Consumer Financial Protection Bureau (CFPB) has announced the implementation of a final rule aimed at reforming overdraft fees, a move that could save U.S. consumers up to $5 billion. annually.

The regulation is aimed at banks and credit unions with assets of more than DKK 10 billion. USD, which gives them more opportunities to manage their overdrafts.

These include capping overdraft fees at $5, covering only costs and losses, or complying with traditional lending laws if they continue profit-driven overdrafts.

The new overdraft rule comes into force on 1 October 2025.

The CFPB’s action addresses a longstanding regulatory loophole that allowed large banks to exclude overdraft fees from being considered a finance charge.

This exception dates back to 1969, when the Federal Reserve Board decided that overdraft services, typically not for profit but as a courtesy, should not be subject to Truth in Lending Act (TILA) protections.

But in recent decades, overdrafts have become a major source of consumer costs, contributing to the financial exclusion of tens of thousands of consumers and negative credit impacts.

Financial institutions with assets of over DKK 10 billion. USD now faces three options for charging overdraft fees. They can limit the fee to $5, set a fee that covers their costs and losses, or fully disclose terms for overdrafts that are similar to other loans, such as credit cards.

This includes allowing consumers to open an overdraft facility, account opening information for comparison shopping, periodic statements and payment options.

The CFPB’s initiative is part of an effort by the White House Competition Council to reduce junk fees across various sectors.

The CFPB has led this initiative, which has resulted in several banks reducing or eliminating overdraft and non-sufficient fund (NSF) fees, saving consumers $6 billion. annually. Despite these changes, consumers still paid over 5.8 billion. USD overdraft and NSF fees in 2023.

CFPB Director Rohit Chopra said, “For far too long, the biggest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts.

“The CFPB is cracking down on these excessive junk fees and is demanding that the big banks come clean about the interest they charge on overdrafts.”

The CFPB has also enforced actions against large institutions for illegal overdraft fees and ordered refunds to consumers.

Recent enforcement actions against Navy Federal Credit Union, Wells Fargo, Regions Bank and Atlantic Union have resulted in significant chargebacks for illegal fees.