NCLC Advocates Praise Final Rule Slashing Big Bank Overdraft Fees from $35 to $5, Bringing Billions in Relief to 1 in 5 Families
WASHINGTON – Today, the Consumer Financial Protection Bureau (CFPB) finalized new protections for Americans struggling to make ends meet. The CFPB’s final rule on big bank overdraft fees 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.
“Big banks that charge high fees for overdrafts are not providing a courtesy to consumers – it’s a form of predatory lending that exacerbates wealth disparities and racial inequalities,” said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center. “The CFPB’s overdraft rule ensures that the most vulnerable consumers are protected from big banks trying to pad their profits with junk fees.”
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 impact falls most heavily on lower-income families and communities of color, as well as marginalized communities.
“Big banks have exploited a loophole in the law designed in the check era for occasionally covering checks that would bounce to create a $6 billion hidden profit center,” Sanchez-Adams said.
The new rule, however, may face the threat of being overturned by Congress using the Congressional Review Act (CRA), which allows Congress, with the President’s signature, to overturn rules 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 the 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.
“It is critical that incoming and returning members of Congress and President-Elect Trump side with voters struggling in this economy and support the CFPB’s overdraft rule,” said Lauren Saunders, associate director at the National Consumer Law Center. “This rule is an example of the CFPB’s hard work for everyday Americans.”
Some banks, like Capital One, Citibank, and Ally Bank, have completely eliminated overdraft fees. While the rule lowers most overdraft fees for so-called “courtesy” services at big banks, it still allows banks to cover overdrafts and also allows transparently priced overdraft lines of credit. Those credit lines would have no price limit but would be required to consider a consumer’s ability to repay the loan.
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