Goodbye to abusive overdraft fees: The new rule the Biden administration plans to impose on banks

Thanks to new rules implemented by the Biden Administration and the Consumer Financial Protection Bureau (CFPB), large banks will no longer be able to charge excessive overdraft fees. These putative fees can create major financial challenges, especially for those living in poverty or with poor credit who already lack access to the banking system and can be removed further through these penalties.

The final rules that prohibit abusive overdraft fees were published by the CFPB on Thursday, December 12. Banks will now only be able to charge an overdraft fee that allows them to recover the amount the account was overdrafted. The CFPB noted that since 2021, when they began investigating the impact overdraft deeds had on households, “revenue [from these fees] has contracted somewhat.” However, some customers continue to be charged $35 if their account becomes overdrafted and additional fees if they continue to have an account in the red.

The new rules for overdraft fees

Taking the history of overdraft fees into account, including why they were created when much of commerce and banking depended on checks and subsequently on debit cards, the CFPB provides banks with two options. The first is to impose an overdraft fee based on “calculating its own costs and losses using a standard set forth in the rule,” or “a benchmark fee of $5.” These rules apply to banks that manage assets valued at $10 billion or more.

Billionaire Elon Musk calls for the the elimination of the CFPB

As the second Trump administration prepares to enter the White House, the organization tasked with enforcing the new banking rule, the CFPB, has become a major target.

The CFPB was established after the Great Recession to protect the public from predatory practices in the banking system. Elon Musk, who has been tapped to lead the semi-governmental Department of Government Efficiency, posted on X, the social media platform that he owns, that the CFPB should be deleted, citing “too many duplicative regulatory agencies.” Anytime a billionaire stands in opposition to consumer protection, one should proceed with caution and consider possible conflicts of interest.

A few days after Musk made his comments, Senator Chris Van Hollen (D-MD) touted the news from the CFPB that $1.8 billion would be distributed to 4.3 million customers who had been “charged illegal advance fees or subjected to allegedly deceptive bait-and-switch advertising” by what is described as a “group of credit repair companies.” In his post on X, the Maryland Senator refuted Musk’s position, arguing that eliminating the CFPB would “make it easier for scammers to cheat consumers.”

Alongside creating rules, the CFPB ensures compliance by taking enforcement actions and investigating potential violations.

In October, a consent decree against Apple revealed that the company had used deceptive practices regarding credit cards, which caused some customers to incur hefty fees. Additionally, alongside their business partner, Goldman Sachs, the two firms knowingly implemented a complaints system that was “not fully ready,” leaving customers with minimal options for resolving issues related to their accounts. These problems resulted in customers facing unclear fees and a lack of meaningful contact with the company to dispute the charges. Ultimately, Apple was mandated to pay $25 million in civil penalties and show compliance with the law. In a previous decree, Goldman was required to pay consumers $19.8 million in restitution and a $45 million civil penalty.

Since its inception, the CFPB has delivered nearly $20 billion in relief, benefiting over half of the U.S. population—195 million— qualified to receive assistance. Without the CFPB, consumers would have significantly less power to challenge corporate and banking abuses when these entities violate laws or exploit weaknesses in public protections against predatory practices.

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