While many banks have moved to reduce their overdraft fees, charges still average around $30 for each instance, according to a recent survey.
Credit...Paul Frangipane for The New York Times

New Federal Rule Limits Overdraft Fees at Large Banks

It is unclear whether the rule, which could help save Americans billions in fees each year, will remain in place after President-elect Donald J. Trump returns to office.

by · NY Times

The Consumer Financial Protection Bureau finalized a rule on Thursday that would limit overdraft charges at large banks and credit unions, a move that federal officials said could help save Americans billions in fees each year.

Whether it will remain in place once President-elect Donald J. Trump returns to power is unclear.

The rule would cap fees that customers are charged when they spend more money than they have in their bank accounts. Federal officials said large banks would have several options to comply. They could cap their overdraft fees at $5, or set their fees at another amount that covers their costs and losses. Alternatively, they could treat overdrafts as a line of credit and provide similar disclosures, including applicable interest rates.

While many banks have moved to reduce their overdraft fees, charges still average around $30 for each instance, according to a recent Bankrate survey.

The rule would apply to institutions with more than $10 billion in assets, which includes about 150 of the nation’s roughly 9,000 banks and credit unions, and take effect in October.

Banking trade groups sharply criticized the rule after the bureau proposed it this year. Some in the industry are expecting the Trump administration, which took a friendly approach to banks during Mr. Trump’s first term, to try to roll it back.

Republican lawmakers could also try to undo it and other Biden administration regulations using an obscure law known as the Congressional Review Act. But given slim Republican majorities in the House and the Senate next year, it is unclear whether they could muster enough support to roll back many rules.

Mr. Trump will also get to name a new head of the consumer bureau, and that person could simply choose not to enforce the new rules.

“We don’t think this rule survives,” Ian Katz, a managing director at Capital Alpha Partners, wrote in a research note. “We expect banking groups to soon file a lawsuit seeking to have the rule vacated.”

Rohit Chopra, the bureau’s director, said that banks have long “exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts.”

“The C.F.P.B. 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,” Mr. Chopra said in a statement.

Consumer advocacy groups lauded the new limits on overdraft fees. Christine Chen Zinner, a senior policy counsel at Americans for Financial Reform, said the rule would help protect consumers and ensure that they do not lose their bank accounts because of “excessive overdraft fees.”

“High overdraft fees make it harder for customers to be able to return back to a positive balance,” Ms. Chen Zinner said. “It contributes to involuntary account closures, even from customers being blocked out of the banking system altogether.”

Banking trade groups have fought against the rule. Rob Nichols, the president and chief executive of the American Bankers Association, said in a statement that the rule should not go into effect and that the “bureau has once again chosen to prioritize demonizing highly regulated and transparent bank fees over its mission to help consumers.” He added that the rule would make it significantly harder for banks to offer overdraft protection to customers.

The future of the consumer bureau also remains in question. Some of Mr. Trump’s advisers have called for eliminating the agency altogether, although some banking trade groups have said they expect the bureau to continue to exist.

Over the past few weeks, the bureau has issued a slate of new rules and regulatory proposals intended to do things like monitor big tech companies’ payment services and rein in the sale of consumers’ personal data. The rules have garnered praise from financial industry groups and others who have not typically supported the agency’s actions under the Biden administration.

Some Republicans, though, have criticized the agency for not pausing its regulatory agenda after the election. At a Senate Banking Committee hearing on Wednesday, Senator Tim Scott, Republican of South Carolina, questioned Mr. Chopra about the agency’s decision to continue to issue new rules and proposals.

“I don’t think it makes sense for the C.F.P.B. to be a dead fish,” Mr. Chopra said.

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