Several banks and banking trade groups have filed a lawsuit against the Consumer Financial Protection Bureau (CFPB) regarding a finalized rule that restricts the amount of overdraft fees banks can charge. This rule is part of President Joe Biden's efforts to reduce excessive fees that impact consumers, particularly in banking services.
The finalized rule, announced recently, allows banks to choose from three options for overdraft fees: a flat fee of $5, a fee covering their costs and losses, or any fee as long as the terms are disclosed, typically as an annual percentage rate (APR).
Although banks have reduced overdraft fees over the past decade, the largest banks in the U.S. still collect around $8 billion annually from these charges. Currently, there is no legal cap on overdraft fees that banks can impose.
The rule is scheduled to come into effect in October 2025. However, the incoming administration has not yet appointed a leader for the CFPB and has discussed the possibility of eliminating the agency altogether.
The rule applies to banks and credit unions with assets exceeding $10 billion, including the nation's major banks. Banks have previously challenged the CFPB over regulations such as credit card late fee caps, and Congress also has the authority to challenge or overturn the rule.
The lawsuit was filed by the Consumer Bankers Association, the American Bankers Association, America’s Credit Unions, the Mississippi Bankers Association, and other banks. They argue that the CFPB is overstepping its regulatory boundaries with this new rule.
The CBA President emphasized the importance of overdraft services in providing essential liquidity during short-term financial difficulties, enabling consumers to meet crucial expenses. Without these services, consumers may resort to unregulated non-banking alternatives, which could be riskier.
The complaint was lodged in the U.S. District Court for the Southern District of Mississippi, Northern Division. The plaintiffs are seeking a preliminary injunction to prevent the CFPB from implementing the rule until a final decision is reached.
