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CFPB Limits Overdraft Fees to Save Consumers $5 Billion Amid Legal Challenges

Dec 12, 2024, 08:32 PM

The Consumer Financial Protection Bureau (CFPB) has announced a final rule that will limit the ability of banks and credit unions to charge overdraft fees, aiming to save American consumers approximately $5 billion annually. Under the new regulation, financial institutions with more than $10 billion in assets can choose to charge a flat fee of $5 per overdraft, a fee that covers their costs and losses, or any fee provided they disclose the terms of the overdraft loan as they would for other loans, including the annual percentage rate (APR). This rule is part of the Biden administration's broader campaign to reduce 'junk fees' that disproportionately affect lower-income consumers. CFPB Director Rohit Chopra stated that the rule closes a legal loophole that allowed banks to bypass lending laws, leading to excessive charges. However, the rule faces opposition from the banking industry, which has previously challenged similar regulations in court. The incoming Trump administration could potentially alter or rescind this rule, with banks likely to sue again. The rule is set to take effect in October 2025.