(NewsNation) — A new rule from the Biden administration would cap overdraft fees at $5, lower than the average of $26 in 2023.
The new rule was released Thursday by federal regulators and is part of President Joe Biden’s campaign against junk fees, which include everything from late fees and overdraft fees to hidden charges on concert tickets.
The Consumer Financial Protection Bureau offered two other options for banks that don’t want to cap fees. They can charge a fee equal to what it costs to cover the overdraft or treat it as a loan and allow customers to open a line of “overdraft credit.”
Regulators say the new rule will save up to $5 billion in overdraft fees for bank customers each year, which works out to about $225 per household.
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said CFPB Director Rohit Chopra. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans.”
Bank leaders have warned that the cap could hurt customers who rely on overdraft protection and could lead them to turn to predatory payday loans or pawn shops.
Biden announced the crackdown in January, sparking criticism from banks that claimed capping fees would reduce how much overdraft protection they could offer.
Some large banks have already reduced or eliminated overdraft frees after being pressured by lawmakers and regulators.
The rule may be challenged by the banking industry. A March rule that would cap credit card late fees at $8 prompted a lawsuit, and a federal judge put the cap on hold.
