Congress recently overturned a Consumer Financial Protection Bureau (CFPB) rule that would have limited overdraft fees to $5 at the nation’s largest banks and credit unions. The rule was expected to save U.S. consumers approximately $5 billion annually. The resolution to eliminate the overdraft rule passed the House largely along party lines in early April.
The Senate approved a similar measure last month. The bill is now awaiting President Trump’s signature, which is anticipated given his administration’s stance on rolling back government regulations. The CFPB had projected that its overdraft rule, which would have taken effect in October, could save a typical household that incurs overdraft fees about $255 annually.
The rule offered banks and credit unions three options: charge a flat $5 fee, justify a higher fee based on the actual cost of handling overdrafts, or treat overdrafts as credit products with all required federal lending law disclosures, including the annual percentage rate (APR). Banking groups and Republican lawmakers have consistently opposed the CFPB’s efforts to regulate overdraft fees, arguing that the agency lacked the legal authority to implement such regulations. They also claimed the rule might lead banks to cease offering overdraft protection entirely.
“This rule would have imposed unlawful government price caps,” said Rob Nichols, president and CEO of the American Bankers Association. By overturning the rule, Nichols stated, “American banks can continue offering this important, optional service consumers rely upon to meet their short-term financial needs.
Consumer advocates criticized the decision as a boon for financial institutions at the expense of working Americans. Repealing the CFPB’s limits on overdraft fees gives big banks the green light to rip off their customers with excessive charges,” said Chuck Bell, advocacy program director at Consumer Reports.
Lauren Saunders, associate director at the National Consumer Law Center, echoed this sentiment, asserting that “Republicans in Congress had a chance to put $5 billion back in the pockets of working people, including service members.
Congress repeals CFPB overdraft rule
Instead, they sided with Wells Fargo, Chase, and Navy Federal Credit Union, allowing them to use abusive overdraft fees to pad their profits.
Overdraft fees, charged when financial institutions cover transactions exceeding a customer’s account balance, averaged $27.08 per transaction last year.
Most debit card transactions that result in overdraft fees are $24 or less and are typically repaid within three days. Despite some banks reducing or eliminating overdraft fees, they continue to generate billions in revenue. Last year, Chase and Wells Fargo each earned more than $1 billion in overdraft fees.
Navy Federal Credit Union collected $335 million in overdraft fees, more than any other institution except Chase and Wells Fargo. Amid increasing scrutiny of so-called “junk fees,” some major banks have voluntarily changed their overdraft policies. As a result, overdraft and NSF revenue in 2023 dropped by more than 50 percent from pre-pandemic levels, saving consumers more than $6 billion annually.
In 2022, Bank of America reduced its overdraft fee to $10 from $35. Capital One has eliminated all overdraft fees, offering a No-Fee Overdraft service. Chase Bank and Wells Fargo have also introduced measures to lessen the burden of overdraft fees.
Several online banks have eliminated overdraft fees entirely. Ally Financial ended all overdraft fees in 2021, Chime offers a fee-free overdraft service called “SpotMe,” and Discover Bank abolished all fees on checking and savings accounts in 2019. To avoid overdraft fees, consumers can decline optional overdraft protection, set account alerts to monitor low balances, link accounts to automatically cover overdrafts from a savings account or line of credit, compare checking accounts for low or no-fee options, and be vigilant with auto-pay to ensure sufficient funds are available.
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