The Consumer Financial Protection Bureau last week proposed a new rule that would limit overdraft fees that the country’s largest banks can charge customers, a move that the banking industry would likely challenge, CBS News reported.
Under the proposed regulation, banks would only be allowed to charge customers the actual cost to cover the overdraft, or banks could agree to abide by a set limit determined by the Consumer Financial Protection Bureau.
According to a statement from the CFPB, this rule would effectively eliminate the typical $35 penalty charged to accounts that become overdrawn, a practice that has generated about $9 billion a year for the US banking industry.
The new rule would apply to banks and credit unions that have over $10 billion in assets, which amounts to about 175 of the country’s largest financial institutions. While these institutions could continue to charge customers the actual cost of the overdraft, the rule would prevent them from generating profits from covering the overdraft costs.
If the banks do not want to provide a breakdown of the costs to the CFPB, they could opt to adopt a set penalty determined by the agency. Regulators with the CFPB recommended a charge of anywhere from $3 to $14.
Banks could also opt to provide customers with a small line of credit to cover any possible overdrafts, a service similar to a credit card. Currently, some banking institutions already offer lines of credit to customers.
Industry and public comments on the proposed change will be solicited by April 1, with the rule expected to go into effect in October of next year.
In a statement last week, Rob Nichols, the President and CEO of the American Bankers Association said the CBPB’s proposal was yet another attempt by the agency to “demonize and mischaracterize” already regulated and disclosed bank fees.
Nichols said the proposed rule would make it harder for banks to provide overdraft protection, especially for customers who have few other means “to access needed liquidity.”