Some banks and banking industry groups are suing the Consumer Financial Protection Bureau over a final rule that limits the overdraft fees banks can charge.
The rule is part of President Joe Biden's campaign to reduce junk fees imposed on consumers on everyday purchases, including banking services.
But banks argue that without overdraft protection, desperate consumers will instead turn to inferior, unregulated services to ease their hardship.
under final rules Banks will have three options: charge a flat $5 overdraft fee or charge a fee to cover costs and losses, according to a Consumer Financial Protection Bureau announcement Thursday. or as long as it charges any fees or discloses the terms of the overdraft loan like any other loan, usually expressed as an annual percentage rate (APR).
Although banks have reduced overdraft fees over the past decade, the nation's largest banks still collect about $8 billion in fees each year, according to data from the CFPB and banks' public records. Currently, there is no cap on the amount of overdraft fees that banks can legally charge.
The final rule is scheduled to go into effect in October 2025, but the incoming Trump administration has not yet named someone to lead the CFPB and has mentioned the idea of abolishing it.
The final rule applies to banks and credit unions with more than $10 billion in assets, including the nation's largest banks. Banks have previously sued the CFPB over these rules and caps on credit card late fees. Congress also has the power to challenge or overturn rules.
The Consumer Bankers Association filed the lawsuit, along with the American Bankers Association, American Credit Union, Mississippi Bankers Association and other banks. The group argues that the CFPB is overstepping its regulatory authority with the new rules.
“Studies show that overdraft services provide much-needed liquidity during short-term budget shortfalls and help consumers stay on the table,” said Lindsey Johnson, CBA President and CEO. They will be able to put food on the table, turn on the lights, and make other important payments on time.” “Without overdraft services, consumers who can afford to do so are more likely to turn to inferior and less regulated non-bank services to fill the gap.”
The complaint was filed Thursday in the U.S. District Court for the Southern District of the Northern District of Mississippi. CBA and its co-plaintiffs are also seeking a preliminary injunction barring the CFPB from enforcing the new rules until the court makes a final decision on the merits of the case.
