The Consumer Financial Protection Bureau released a new rule Thursday that would cap bank overdraft fees charged to customers, but the regulation faces an uncertain future under President-elect Donald Trump.
Under the final rule, large banks have a few options when a customer withdraws cash or makes a purchase with insufficient funds in their account. They can charge a flat $5 or a fee no larger than the administrative cost to the bank. Or they can treat the overdraft as a loan to the customer and disclose the interest rate, as they would with a credit card.
The CFPB said it estimates the rule would save customers a total of $5 billion a year, or $225 for each household that pays such fees. It would only apply to large banks with at least $10 billion in assets.
Rohit Chopra, the agency’s director, said large banks have “exploited a legal loophole” for years, and that the new regulation would close it.
“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, who was appointed by President Joe Biden, said in a statement.
The rule is slated to go into effect on Oct 1, 2025, but it might not make it that far. Industry groups claim the CFPB is exceeding its authority in issuing the regulation and could mount legal challenges in court.
Meanwhile, Trump takes office in January shortly after Republicans assume control of the Senate, giving them majorities in both chambers of Congress.
Because the overdraft rule was finalized so late in Biden’s presidency, Trump and GOP lawmakers could use a law called the Congressional Review Act to spike the regulation before it takes effect. Passing such a resolution only requires a simple majority in the Senate and amounts to a death knell for a new federal rule.
Trump has yet to put forth a nominee to run the CFPB, which is tasked with protecting consumers from abuses by financial institutions.
But Republicans have generally bashed the agency since it was created in the wake of the global financial crisis, and Trump advisor Elon Musk, the richest man in the world, has said the agency should be “deleted.”
A spokesperson for the Trump transition team did not immediately respond to an email asking whether the president-elect would seek to keep the rule.
Overdraft fees have infuriated customers for years. The CFPB has said banks “typically” charge a fee of $35, even though most of the debit card transactions involved are for $26 or less. Banks’ use of the charges have generally been dropping as the practice has come under more scrutiny.
Democracy In The Balance
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The CFPB said several banks began limiting or doing away with overdraft fees since the agency announced it would be pursuing the rule, but customers still paid at least $5.8 billion in overdraft fees in 2023.
Cracking down on the fees was a priority for Biden, who views them as abusive.
“Banks call it a service – I call it exploitation,” the president said earlier this year.