A final rule on overdraft lending programs for large banks and credit unions was finalized Thursday that, the federal consumer financial protection agency said, gave the financial institutions “several options to manage their overdraft lending program.”
The Consumer Financial Protection Bureau (CFPB) said the options for banks and credit unions with more than $10 billion in assets included: cap their overdraft fee at $5; cap their fee at an amount that covers costs and losses; disclose the terms of their overdraft loan just like other loans.
On that third option, the bureau said it means that banks or credit unions that wish to profit from overdraft lending “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 bureau contended that 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.
The final rule takes effect on Oct. 1, 2025.
According to the CFPB, the final rule closes a loophole in the 1968 Truth in Lending Act (TILA) which exempted overdraft fees as a finance charge. Fifty-six years ago, the CFPB said, many families sent and received checks through the mail. Those were subject to various bank processing times for their deposits and withdrawals to clear.
In 1969, the bureau said, the Federal Reserve 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,” the CFPB said.
“Over the past few decades, these highly profitable overdraft loans have increased consumer costs by billions of dollars,” the agency added. “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.”
CFPB Closes Overdraft Loophole to Save Americans Billions in Fees