The Consumer Financial Protection Bureau announced it is implementing a new rule that limits how much banks can charge on overdrafts starting Oct. 1, 2025.
The announcement comes after a year of legal battles between the banking industry and Biden administration.
While the CFPB's new regulations are set to go into place on Oct. 1, 2025, the incoming Trump administration has the power to rescind the new rule by executive order.
The decree gives the banks the option to charge $5 per overdraft or a fee that covers their losses. The Biden administration claims that overdraft fees are used to provide banks with enormous profits.
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Banks that have less than $10 billion in assets are exempt from the rule.
The CFPB estimates that the new rule would save Americans about $5 billion.
"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. "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."
Many leaders in the banking industry have opposed the rule.
“Community banks provide a wide range of products and services in a competitive marketplace that customers may select to address situations in which they’ve overdrawn their account, including overdraft programs, free ad hoc solutions, alerts about their account status, account transfers, and more. If enacted, the CFPB’s restrictions would have a negative ripple effect on customers and businesses that rely on overdraft services by causing them to experience the harsh realities of rejected payments," said Independent Community Bankers of America CEO Rebeca Romero Rainey.
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American Bankers Association CEO Rob Nichols suggested his organization could take additional legal action.
“In addition to the consumer harm this rule will cause, it‘s yet another example of the CFPB’s willingness under Director Chopra to exceed its Congressionally mandated guardrails," he said. "The Bureau has no legal authority to subject overdraft services offered by any financial institution to Regulation Z, much less implement a price cap on overdraft protection. We will closely review the final rule with our members and consider all options going forward. It should not be allowed to go into effect.”
Rules put in place over a decade ago capped first-time missed payments to $25, which was allowed to go up based on inflation. The new rule would not increase the allowable late fee based on inflation.
