By MICHELLE CHAPMAN, AP Business Reporter
Some banks and banking groups are suing the Consumer Financial Protection Bureau over a final rule that caps overdraft fees charged by banks.
The rule is a component of President Joe Biden's administration's campaign to cut back junk fees that burden consumers on on a regular basis purchases, including banking services.
But banks argue that without overdraft protection, desperate consumers would as an alternative turn to inferior, unregulated services to ease their crisis.
Under the final rule According to data from the Consumer Financial Protection Bureau announced Thursday, banks can choose from three options: They can charge a flat $5 overdraft fee, they will charge a fee that covers their costs and losses, or they will charge any fee so long as they disclose the terms of the overdraft like every other loan, normally expressed as an APR or APR.
While banks have reduced their overdraft fees over the past decade, the nation's largest banks still collect about $8 billion in fees every year, based on the CFPB and public banking records. There is currently no cap on the overdraft fees banks are legally allowed to charge.
The final rule is scheduled to take effect in October 2025, but the brand new Trump administration has yet to tap anyone to guide the CFPB and has mentioned the concept of abolishing the agency.
The final rule applies to banks and credit unions with greater than $10 billion in assets, including the nation's largest banks. Banks have previously sued the CFPB over these rules and caps on late fees on bank cards. Congress also has the choice to challenge or repeal the rule.
The Consumer Bankers Association filed the lawsuit together with the American Bankers Association, America's Credit Unions and the Mississippi Bankers Association, in addition to other banks. The group claims that the CFPB is exceeding its regulatory authority with the brand new rule.
“Research shows that during a short-term budget shortfall, overdraft services provide much-needed liquidity so consumers can put food on the table, keep the lights on and make other important payments on time,” CBA President and CEO Lindsey Johnson said in a press release. “Without overdraft services, marginalized consumers are more likely to turn to poorer, less regulated non-bank services to fill the gap.”
The lawsuit was filed Thursday within the U.S. District Court for the Southern District of Mississippi, Northern Division. CBA and its co-plaintiffs are also looking for an injunction prohibiting the CFPB from implementing the brand new rule until the court makes a final decision on the matter.
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