CFB unveils rule proposal targeting overdraft fees

The long-awaited new overdrafts rule from the CFPB was?unveiled today.

Since Rohit Chopra took over as head of the CFPB in 2021, they have made it clear that they were going after overdraft fees and this proposed rule is the culmination of those efforts.

The proposed rule gives banks two options on how to approach overdrafts. First, banks could offer overdraft loans, treating them as a line of credit, subject to all the rules in the Truth in Lending Act. Second, they could offer overdrafts as a courtesy service with fees in alignment with their costs, in the range of $3 to $14.

The new rules would only apply to banks with $10 billion in assets or more and are not expected to go into effect until October 2025.

Industry groups will, of course, fight these new rules. But many banks have seen the writing on the wall and have already?eliminated or reduced overdraft fees.

I have written many times about overdraft fees as it is one of the most punitive of all banking products with the fee often exceeding the amount of the overdraft.?

Fintech has taken the lead here with many companies offering overdraft alternatives. In fact, I credit fintech for starting this entire movement for the radical change to the overdraft landscape.

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