New Rule Puts Cap On Bank Overdraft Fees | EUROtoday

The Consumer Financial Protection Bureau launched a brand new rule Thursday that might cap financial institution overdraft charges charged to clients, however the regulation faces an unsure future underneath President-elect Donald Trump.

Under the ultimate rule, massive banks have a couple of choices when a buyer withdraws money or makes a purchase order with inadequate funds of their account. They can cost a flat $5 or a charge no bigger than the executive price to the financial institution. Or they will deal with the overdraft as a mortgage to the shopper and disclose the rate of interest, as they might with a bank card.

The CFPB mentioned it estimates the rule would save clients a complete of $5 billion a yr, or $225 for every family that pays such charges. It would solely apply to massive banks with a minimum of $10 billion in belongings.

Rohit Chopra, the company’s director, mentioned massive banks have “exploited a legal loophole” for years, and that the brand new regulation would shut it.

“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,” Chopra, who was appointed by President Joe Biden, mentioned in a press release.

The rule is slated to enter impact on Oct 1, 2025, but it surely won’t make it that far. Industry teams declare the CFPB is exceeding its authority in issuing the regulation and will mount authorized challenges in courtroom.

Meanwhile, Trump takes workplace in January shortly after Republicans assume management of the Senate, giving them majorities in each chambers of Congress.

Because the overdraft rule was finalized so late in Biden’s presidency, Trump and GOP lawmakers might use a regulation referred to as the Congressional Review Act to spike the regulation earlier than it takes impact. Passing such a decision solely requires a easy majority within the Senate and quantities to a dying knell for a brand new federal rule.

Trump has but to place forth a nominee to run the CFPB, which is tasked with defending shoppers from abuses by monetary establishments.

But Republicans have typically bashed the company because it was created within the wake of the worldwide monetary disaster, and Trump advisor Elon Musk, the richest man on the planet, has mentioned the company ought to be “deleted.”

A spokesperson for the Trump transition staff didn’t instantly reply to an e-mail asking whether or not the president-elect would search to maintain the rule.

Overdraft charges have infuriated clients for years. The CFPB has mentioned banks “typically” cost a charge of $35, despite the fact that many of the debit card transactions concerned are for $26 or much less. Banks’ use of the fees have typically been dropping because the observe has come underneath extra scrutiny.

The CFPB mentioned a number of banks started limiting or taking away overdraft charges because the company introduced it will be pursuing the rule, however clients nonetheless paid a minimum of $5.8 billion in overdraft charges in 2023.

Cracking down on the charges was a precedence for Biden, who views them as abusive.

“Banks call it a service – I call it exploitation,” the president mentioned earlier this yr.