The Consumer Financial Protection Bureau has announced a new rule which significantly limits their ability to charge excessive overdraft fees.
The regulator expects that its new rule will save American consumers $5 billion per annum.
The CFPB is crackingdown on these excessive junk fee and requiring the big banks to be transparent about the interest rates they charge on overdrafts, Rohit Chopra – the director of CFPB – said in a Thursday statement.
What the new CFPB Overdraft Rule entails
Chopra accused the US banks of “exploiting an illegal loophole” for years to siphon billions from American consumers.
The average fee charged by banks per transaction is $35. The new rule from the regulator leaves them with three options.
- Charge an overdraft of only $5.0
- Charge a fee that covers only your incurred expenses
- Charge any fee, but be upfront with the interest rate of the overdraft loan
The Dow Jones US Banks Index has risen by 35% since the beginning of the year.
US banks challenge the new Overdraft Rule
The CFPB expects to implement its new rule on October 1 st next year.
It will have to face stiff opposition first from the largest US banks, which have a long history of thwarting regulators’ efforts to bring down their robust toplines.
The Consumer Financial Protection Bureau, for example, has previously limited the late fees on credit cards to $8.0 per incident.
In May, the American Bankers Association (ABA), however, was able to block this rule by a federal judge.
It’s anyone’s guess whether the new overdraft rules will be implemented in the final quarter 2025.
Are US bank stocks well-positioned for the year 2025?
The news comes about a month ahead of the US banks’ quarterly earnings report.
RBC analyst Gerard Cassidy says that the outlook for bank shares under the new government will be quite positive.
Cassidy believes “a few people will be removed from regulatory agencies like CFPB”, once Trump is sworn in as president next month.
In a recent CNBC interview, the analyst suggested that he may also “put in a pro-banker” at the OCC.
Overall, he believes that the regulatory framework under Trump’s administration is a positive thing for US banks which have been on a sharp upward trend over the last 14 months.
Since October 2023, the DJUSBK is up a staggering 85%.
This post Americans set for $5 billion annual savings as CFPB announces a new overdraft Rule may be modified as the updates unfold
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