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Home Business & Finance

A new federal rule just chopped down a frustrating banking fee todayheadline

December 13, 2024
in Business & Finance
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A new federal rule just chopped down a frustrating banking fee
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Americans face numerous threats to their pocketbooks on a daily basis. They are often hit with inflated prices for goods and services, hidden fees, higher costs of living, etc.

According to a recent survey from Bankrate, 43% of Americans say their financial situation has worsened since January 2021 amid these higher costs.

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One of the major pain points consumers often complain about is fees associated with their bank accounts.

Related: U.S. government’s crackdown on bank overdraft fees just got a bit more serious

It is common for some consumers to experience a mini panic attack after seeing their bank account overdrawn because they know what’s coming next … a hefty overdraft fee. These fees, historically in the $35 range, are enough to further exacerbate debt.

However, the Consumer Financial Protection Bureau has been cracking down on this issue for months and has just finalized a new rule that would significantly cap these fees.

Bank overdraft fees will be significantly cheaper

According to a recent press release, the CFPB has finalized a rule that caps bank overdraft fees at $5, which could save consumers up to $5 billion each year. It is set to take effect on Oct. 1, 2025.

“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said CFPB Director Rohit Chopra in the press release. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they charge on overdraft loans.”

A man is seen sitting at a desk thinking about credit card debt.

Shutterstock

The new rule applies to banks and credit unions with more than $10 billion in assets. It also gives banks the option to cap their overdraft fee “at an amount that covers costs and losses” or treat an overdraft as a loan.

“For financial institutions that wish to profit from overdraft lending, they may do so by complying with the standard requirements governing other loans, like credit cards,” said the CFPB in the press release. “This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually.”

U.S. banks aren’t happy about the new rule

The American Bankers Association, which lobbies for U.S. banks of all sizes, admonished the CFPB’s final rule on overdraft fees in a statement, claiming that it “will make it significantly harder for banks to offer this valuable service to their customers.”

“We’re deeply disappointed that the CFPB has chosen to finalize this misguided rule at a time when every other federal bank regulator has stopped issuing new regulations,” said American Bankers Association CEO Rob Nichols in the statement. “By taking this action, the Bureau has once again chosen to prioritize demonizing highly regulated and transparent bank fees over its mission to help consumers.”

Related: Chase Bank threatens to make customers pay for upcoming changes

The CFPB first proposed the rule on Jan. 17, 2024, warning banks that the benchmark for overdraft fees could range between $3 and $14.

“For too long, some banks have charged exorbitant overdraft fees – sometimes $30 or more – that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” said President Joe Biden in a statement on Jan. 17. “Banks call it a service – I call it exploitation.”

A few months after the rule was proposed, JPMorgan Chase Bank reportedly threatened to charge customers for a plethora of services that have historically been free, such as having checking accounts or access to wealth management tools, if the rule was passed, according to a report from the Wall Street Journal in July.

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The extra charges would help Chase make up for the potential loss in profits it would face from having to cap its overdraft fees.

The rule’s finalization comes after overdraft fee income at U.S. banks increased during the third quarter of 2024 to the highest level since the fourth quarter of 2022, according to recent data from S&P Global.

During the third quarter, U.S. banks collected $1.50 billion from overdraft fees, an almost 7% increase from the same quarter in 2023.

Related: The 10 best investing books (according to stock market pros)

Tags: bankingchoppedfederalFeefrustratingruletodayheadline
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