During a hearing on June 14, 2023, Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), provided testimony to the House Financial Services Committee. The conversation, captured by Tom Williams of Cq-Roll Call and featured via Getty Images, centered on significant changes in banking policy.
On Thursday, the CFPB unveiled the finalized version of a rule aimed at restricting banks from levying hefty overdraft fees, a move estimated to save American consumers around $5 billion annually. The new rule grants banks three options: they can charge a reduced fee of $5 for overdrafts—a significant decrease from the typical $35 per transaction—or they can adjust the fee to match the costs incurred by the lender. Alternatively, banks can impose any fee, provided they disclose the loan’s interest rate.
“For much too long, the largest banks have used legal loopholes to funnel billions of dollars out of Americans’ deposit accounts,” said CFPB Director Rohit Chopra in an official statement. “The CFPB is targeting these excessive fees and demanding transparency from major banks regarding the interest rates applied to overdraft loans.”
Despite overdraft fees being a substantial revenue source for banks since 2000, boasting $280 billion in revenue, the profitability has been waning. Banks like JPMorgan Chase and Bank of America have either slashed these fees or restricted the transactions that might incur such charges, with some institutions ceasing the fee entirely.
This rule targets banks and credit unions with assets of $10 billion and above. It’s part of a wave of initiatives from the CFPB during the closing phase of the Biden administration, encountering robust resistance from U.S. banking groups. Similar regulatory efforts have faced hurdles, such as a proposed cap on credit card late fees set to start in May, currently stalled in federal court.
Scheduled to take effect on October 1, 2025, the destiny of the overdraft rule is uncertain. Even prior to Donald Trump’s presidential victory in November, the rule’s viability was in question due to industry opposition. With the anticipated appointment of a new CFPB head by Trump in January, policies from the Biden era aimed at curbing banking practices might face resistance.
Banking lobbies argue against the overdraft rule, introduced in January as part of Biden’s crackdown on extraneous fees, claiming it could diminish access to overdraft services and push customers towards less desirable options like payday loans.
In response, the Consumer Bankers Association (CBA) launched a lawsuit later that Thursday against the CFPB in Mississippi, alleging overreach and negligence towards consumer impact. They specifically selected a jurisdiction perceived as favorable for contesting federal regulators.
CBA President Lindsey Johnson expressed, “Regrettably, the CBA had no choice but to pursue legal action against the CFPB’s overt regulatory overstep through this misdirected rule to guarantee continued consumer access to liquidity via overdraft services.”
