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Key Takeaways
- A banking trade group, along with others, has sued to stop the Consumer Financial Protection Bureau from capping most overdraft fees at $5.
- The suit is the latest move in a running battle between banks and regulators as the Biden administration pursues a war on “junk fees.”
- Banks say customers appreciate being able to overdraw their accounts, while the bureau says overdraft fees prey on financially vulnerable customers.
As expected, the banking industry has filed a lawsuit to stop a new regulation that would cap most overdraft fees at $5.
The Community Bankers Association trade group, together with other groups, sued the Consumer Financial Protection Bureau (CFPB) in federal court in Mississippi Thursday seeking to overturn a rule the bureau finalized earlier in the day. The rule, set to go into effect next October, would restrict large banks from charging fees, often around $30-$35, to customers when they withdraw more money than is in their accounts.
The bureau characterizes overdraft charges as “junk fees” that extract money from households living on the financial edge. It points to research that shows most overdraft fees are charged to a small percentage of bank customers who incur them repeatedly, usually those with low incomes.
The banking industry argues that surveys show customers like the safety net of being able to take out more money than is in their account when other credit isn’t available.
“The CFPB’s rule on overdraft services harms Americans who need it most—including the 26 million Americans who don’t have access to credit and thus stand to lose the most if overdraft services are restricted,” CBA CEO Lindsey Johnson said in a press release.
Challenging CFPB’s Authority, and Existence
In the lawsuit, the group accuses the bureau of overstepping its authority in creating the rule. The banking watchdog was established in the aftermath of the Great Financial Crisis.
The lawsuit is the latest flashpoint in a battle between financial services companies and banking regulators over what the administration of President Joe Biden has termed junk fees. As the result of a previous lawsuit, courts have at least temporarily blocked a different CFPB rule limiting credit card late fees to $8.
The future of Biden’s administration to those curtail fees, as well as the bureau itself, are in jeopardy, as Republicans, who have long been hostile to the CFPB, take power in Washington in January. Trump advisor and billionaire Elon Musk called to “Delete” the bureau earlier this year, calling it redundant.
