The Biden Administration is ‘cracking down’ on banks by imposing a $5 cap on overdraft fees, says Americans could save billions in ‘excessive junk fees.’ Will Trump kill the policy?

Overview of overdraft

If your bank offers what is generally called “overdraft protection,” you can complete a purchase when you don’t have enough money in your account. You’ll just have to pay the associated fee and cover the shortfall.

Under the CFPB policy, banks could use other methods of addressing overdrafts. They could charge fees at what the agency calls a "break even" point — that is, only what’s required to cover the bank’s actual costs and losses, and no more.

Or banks could issue overdraft credit lines to consumers, provided they comply with existing laws governing lending, and disclose interest rates.

Some financial-services firms — such as Capital One, Citi Group and Ally — already forgo overdraft fees, while JP Morgan only charges fees for overdraft transactions above a $50 cushion and only after 24 hours of nonpayment.

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WIll the GOP kill the new rule?

Industry groups have lobbied against the CFPB’s proposed new rules: The American Bankers Association and Consumer Bankers Association have publicly opposed the CFPB on the issue, even calling for Congress to step in with a repeal.

"Overdraft services are a vital lifeline for millions of consumers — including the one in five Americans who lack access to credit,” the Consumer Banking Association said in a statement.

“The CFPB’s rule jeopardizes access to overdraft services when hardworking Americans face unexpected expenses, leaving them with worse alternatives like payday loans and pawnshops.”

Banks raked in $2.2 billion in overdraft fees in 2023 despite slashing rates, CNBC reported.

Many consumer watchdog groups believe that the banks could get their way after Republicans assume control of all three branches of government in January.

President-elect Trump’s choice of leader for the CFPB is likely to divert from the Biden Administration's appointees on many issues, including overdraft protection.

A similar CFPB rule, which would put an $8 ceiling on credit card late fees, has been blocked by federal courts over the banking sector’s objections.