From Time Inc.:

The Consumer Financial Protection Bureau has proposed a major rule to overhaul banks’ pesky overdraft fees. This move could potentially save Americans $3.5 billion annually. The proposed rule would treat overdrafts more like loans and subject them to stricter oversight. Under the new rule, financial institutions would have two options regarding fees charged for overdrafts. These could be a “break-even” fee or treating overdrafts as a line of credit, where banks would have to comply with various legal protections and disclosures. The CFPB’s proposal to regulate overdraft fees was largely applauded by consumer advocacy groups, but some expected more from the rule.

In response to the CFPB’s proposal, a senior attorney at the National Consumer Law Center (NCLC) states that overdraft fees are about $35, not in line with the actual cost of covering the overdraft. Fees are triggered for overdrafts of less than $26 and are repaid quickly, usually within three days, resulting in an equivalent of a 16,000% APR, well above the legal limit. The CFPB has started cracking down on overdrafts, resulting in major banks like Capital One and Bank of America eliminating or reducing them. However, banks still pull in between $9 and $10 billion per year from overdrafts.

The proposed rule has its critics, including major banking trade group the American Bankers Association. The rule is far from a done deal; it must undergo a public comment period before finalizing and clearing Congress. Low-income Americans and people of color are particularly affected by overdraft fees, according to the NCLC, and a recent CFPB report found that over a quarter of households were hit with an overdraft fee within the past year.



Read more: Overdraft Fee ‘Profit Machine’ Is the CFPB’s Latest Target