Protecting the Rights of Consumers For Over 25 Years

FOR IMMEDIATE RELEASE:
December 12, 2024

CONTACT:
Office of Communications
press@cfpb.gov

CFPB Closes Overdraft Loophole to Save Americans Billions in Fees

Final rule to save up to $5 billion each year

WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) took action to close an outdated overdraft loophole that exempted overdraft loans from lending laws. The agency’s final rule on overdraft fees applies to the banks and credit unions with more than $10 billion in assets that dominate the U.S. market. The reforms will allow large banks several options to manage their overdraft lending program: they can choose to charge $5; to offer overdraft as a courtesy by charging a fee that covers no more than costs or losses; or continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate. The final rule is expected to add up to $5 billion in annual overdraft fee savings to consumers, or $225 per household that pays overdraft fees.

"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."

Today’s action closes the large bank regulatory loophole that exempted overdraft fees as a finance charge. When Congress passed the Truth in Lending Act (TILA) in 1968, many families used mail to send and receive checks, and were subject to various bank processing times in order for their deposits and withdrawals to clear. In 1969, the Federal Reserve Board exempted banks from TILA protections for infrequent cases where a bank was honoring a check that had not cleared and subjected the customer to overdraft fees. At the time, overdraft services were not considered profit drivers but courtesy services extended by the bank when, for instance, a paper check sent through the mail may have arrived late.

Over the past few decades, these highly profitable overdraft loans have increased consumer costs by billions of dollars. The loans have also led to tens of millions of consumers losing access to banking services, as well as facing negative credit reporting that has prevented them from opening another account in the future.

The CFPB’s Final Overdraft Rule

The final rule makes several key updates to federal regulation governing overdraft fees for financial institutions with more than $10 billion in assets.

These institutions would have to choose one of the following options when charging for overdrafts:

• Cap their overdraft fee at $5: Under this simple option, covered banks and credit unions could simply cap their fee at $5, which is the estimated level at which most banks could be able to cover their costs associated with administering a courtesy overdraft program.

• Cap their fee at an amount that covers costs and losses: For banks that wish to offer overdraft as a convenient service rather than as a profit center, the final rule allows financial institutions to set their fee at an amount that covers their costs and losses.

• Disclose the terms of their overdraft loan just like other loans: For financial institutions that wish to profit from overdraft lending, they may do so by complying with the standard requirements governing other loans, like credit cards. This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually.

CFPB’s Junk Fee Efforts

The CFPB is one of many independent regulatory agencies and cabinet departments that are members of the White House Competition Council , established by the Executive Order on Promoting Competition in the American Economy. The CFPB has been leading the effort to tackle junk fees, consistent with a whole-of-government approach to addressing this important issue. Agencies like the Federal Trade Commission and U.S. Department of Transportation have also pursued important initiatives to tackle junk fees in other sectors of the economy.

Since the CFPB announced its initiative to curb junk fees, multiple banks have begun reducing or eliminating overdraft and non-sufficient fund fees, and consumers have saved $6 billion annually in these fees. However, even with these changes, consumers still paid more than $5.8 billion in 2023 in reported overdraft and NSF fees.

In addition to today’s action on overdraft fees, the CFPB has continued to order many large institutions to return illegal overdraft fees to consumers. The CFPB recently brought a $95 million enforcement action against Navy Federal Credit Union for illegal surprise overdraft fees. The CFPB also took action against Wells Fargo, Regions Bank, and Atlantic Union for illegal overdraft fees, which resulted in refunds to consumers totaling $205 million, $141 million, and $5 million in unlawful fees, respectively.

The overdraft final rule will take effect on October 1, 2025.

Read the regulatory text of the final overdraft lending rule.

Read the CFPB’s final rule, Overdraft Lending: Very Large Financial Institutions.

Read more about the CFPB’s work on junk fees.