Overdraft fees have been a hotly debated issue as of late, with opponents on either side claiming their stance is the best approach all around for members. Credit unions claim the fees help the member while the CFPB claims they bog the members down (you can find a full breakdown of the issue in my article on overdraft.)

However, after months of back and forth, the CPFB finally set an overdraft rule for financial institutions with over $10 billion in assets (about 21 credit unions) to limit the amount these institutions can charge their members for overdrafting their accounts.

“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.”

According to the new rule, financial institutions will need to adhere to one of the following methods for determining overdraft fee amounts:

• 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.

The move did not sit well with financial institutions and advocacy groups, who immediately took up legal action against the ruling. On December 12th, America’s Credit Unions, along with Consumer Bankers Association, American Bankers Association, and the Mississippi Bankers Association, filed a lawsuit against the CFPB, claiming they are not only overstepping in their authority and exhibiting “risky behavior” by passing the rule less than a month before an administration change.

Everyone should have access to services that allow them to make ends meet without having to choose between buying groceries or paying a utility bill,” said America’s Credit Unions President/CEO Jim Nussle. “These financial hardships have serious consequences on families, and overdraft programs provide an affordable lifeline in these circumstances. America’s Credit Unions’ mission is to ensure consumers can partner with credit unions for their financial health and to achieve their best lives. The association is going to continue to fight through legal action to reverse this grave mistake from Director Chopra.”

Despite the new ruling, it is not set to take effect until October 1, 2025. With administration changes coming in January and the legal battles the rule is already facing, it seems unlikely we’ll see the cap be enforced come next October. For now, we’ll keep an eye on legal proceedings and look to early actions taken by the new administration in January will tell how likely that outcome is.