Urge Congress to Support the CFPB’s $5 Cap on Overdraft Junk Fees

December 16, 2024

Exciting news! After years of advocacy by NCLC and our allies, the Consumer Financial Protection Bureau (CFPB) issued a final rule on big bank overdraft fees that will slash typical fees for bank account overdrafts from $35 per transaction to just $5, saving the 23 million households who pay overdraft fees $5 billion a year, an average of $225 for households who pay overdraft fees.

The rule will help everyone but especially families that are struggling with high prices and making ends meet. The rule:

• Reduces most deceptively-named “courtesy” overdraft fees from $35 to $5, while allowing safer, more transparent overdraft lines of credit with no price limit; 
• Saves $5 billion in overdraft fees annually, averaging $225 per household every year that pays overdraft fees; and
• Addresses a major reason people – particularly people of color – avoid banks or lose their bank accounts and become unbanked. 

Big banks typically charge $35 for each overdraft, well in excess of the minimal cost to the financial institution of covering an overdraft, taking nearly $6 billion out of the pockets of the most vulnerable consumers each year. The large fees have become hidden profit centers for big banks built on the backs of working people. The impact falls most heavily on lower-income families and communities of color, as well as marginalized communities. 

Overdraft fees are a vestige of the check era. Decades ago, overdraft loans were exempted from the Truth in Lending Act (TILA) because banks charged overdraft fees only occasionally as a convenience to prevent paper checks from bouncing. As banks became more automated, they exploited the paper-check era loophole to routinely extend high-cost credit without complying with TILA, turning an occasional courtesy into a lucrative back-end junk fee.

Even though the new rule helps millions of people, it faces threats. A lawsuit has been filed to challenge the rule, and it could also be overturned by Congress using the Congressional Review Act (CRA). The CRA allows Congress, with the President’s signature, to overturn new regulations using expedited procedures, a simple majority vote, and limited debate. If Congress and President-elect Trump side with big banks over struggling families and overturn the rule, it would remove this reasonable cap on overdraft fees and stop future attempts to adopt a rule that is substantially the same – which could mean the sky is the limit for big banks. 

In addition to adding their names to the petition, consumers and advocates should reach out to their senators and representatives to convey support for the CFPB’s overdraft rule and broader junk fees initiative. NCLC will be working in the courts and in Congress with all of you and our allies to preserve this important rule that will save consumers $5 billion or more in fees every year. Thank you for your help!