By Rachel Dobkin
Weekend Reporter
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
Some banks and banking trade groups are suing the Consumer Financial Protection Bureau (CFPB) over a finalized rule that limits the amount of overdraft fees that banks can charge account holders.
What Is the Rule?
The rule, part of the Biden administration's push to reduce junk fees to ease the burden on consumers, caps overdraft fees at $5. President Joe Biden has said that overdraft fees, which can reach as much as $35, are "exploitative."
Read More on News
The new rule allows banks to charge a flat overdraft fee of $5. It also gives banks the option to either charge any fee if they disclose the terms as they do for any other loan or to charge a fee that covers their costs.
Presently, banks have no limits on overdraft fees they can charge. According to the CFPB, the nation's largest banks make approximately $8 billion a year in the charges.
The finalized rule, which is scheduled to go into effect in October 2025, applies to banks and credit unions with more than $10 billion in assets. In its press release, the CFPB said the rule will result in up to $5 billion in annual overdraft fee savings to consumers, or $225 per household for those who pay overdraft fees.
...
What Are the Banks Arguing?
The Consumer Bankers Association, along with the American Bankers Association, America's Credit Unions, the Mississippi Bankers Association and other banks, filed a lawsuit in response to the CFPB rule announced Thursday.
The suit filed Thursday argues that the new rule exceeds the bureau's regulatory authority.
"Research shows that overdraft services provide much-needed liquidity during a short-term budget shortfall so consumers can put food on the table, keep the lights on, and make other important payments on time," Consumer Bankers Association President and CEO Lindsey Johnson said in a statement.
Johnson added: "Without overdraft services, consumers on the margins are more likely to turn toward worse, less-regulated non-banking services to fill the gap."
The plaintiffs in the case are seeking a preliminary injunction to stop the CFPB from enforcing the new rule until a final decision is made in the case.
What Has the CFPB Said About the Rule?
When asked about the lawsuit, CFPB spokesperson Allison Preiss told Newsweek via email on Friday afternoon, that the bureau "has heard from tens of thousands of Americans who are sick and tired of paying billions in junk fees. This rule is common sense and long overdue, and it's unclear why big banks are scared to be transparent with their customers about the interest rate they're charging on overdraft loans."
Rohit Chopra, director of the CFPB, accused big banks of exploiting a "legal loophole" that allows them to take money away from American in a statement from a Thursday press release from the bureau announcing the new rule.
"For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans' deposit accounts," Copra said. "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."
Newsweek reached out to the CFPB via email late Friday morning for comment on the lawsuit.
This article includes reporting from The Associated Press.
Update 12/13/24 1:58 p.m. ET: This article has been updated to include comments from CFPB spokesperson Allison Preiss.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines