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Written by Karl Kaluza
on February 06, 2024

The CFPB (Consumer Financial Protection Bureau) is proposing a change to overdraft fees, limiting them to $14. The change would apply to insured credit unions and banks with over $10 billion in assets. The change would require large financial institutions to treat overdraft loans like credit cards and other loans, where related fees and interest rates are disclosed.

Larger financial institutions typically charge $35 for overdrafts, although the actual debit card overdraft loan is only $26. Changing overdraft fee rules could save Americans $3.5 billion per year in overdraft fees, said the CFPB. That equates to about $150/yr for Americans who pay those fees.

The CFPB wants to limit overdraft practices, which, for some institutions, are a profit driver. It is proposing that overdraft fees be "in line with their costs or in accordance with an established benchmark," according to The CFPB proposed benchmarks of $3, $6, $7 or $14.

Currently, overdraft fees are exempt from disclosing all associated fees. This is due to a loophole in the Truth in Lending Act, according to the CFPB. Because these fees are hidden, consumers don't really know the true cost of overdraft fees and loans.

“Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail,” CFPB Director Rohit Chopra said to “Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine.”

The government seems happy with the proposal. “For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Joe Biden said in a statement Wednesday on the new rules. “Banks call it a service—I call it exploitation.”


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