The banking sector is responding to a new regulation by filing a lawsuit through the Community Bankers Association and other entities in a Mississippi federal court. The new regulation, finalized by the Consumer Financial Protection Bureau (CFPB), was introduced to cap the majority of overdraft fees at $5 and is set to be implemented from October next year. Large banks typically charge customers substantial fees, usually ranging from $30 to $35, when they withdraw more funds than they have in their accounts. The CFPB views these overdraft charges as "junk fees". They argue it targets households living close to the financial line and highlights that a small proportion of bank customers, typically those on lower incomes, are normally the ones continually incurring these charges.
The banking industry counters by suggesting that their customer surveys depict a desire for the safety net that allows withdrawals of more than their account balance when other credit options are not available. CBA CEO Lindsey Johnson argues that the CFPB's new rule is damaging for Americans who rely on it the most and that the 26 million Americans without access to credit stand to lose the most if overdraft services become limited.
In their lawsuit, the group claims the CFPB has overstepped its authority in implementing the rule. The CFPB was formed following the Great Financial Crisis. The lawsuit forms the latest contentious incident between financial service providers and banking regulators regarding what President Joe Biden's administration refers to as junk fees. A previous lawsuit resulted in at least a temporary halt of a different CFPB rule that proposed a limit of $8 on credit card late fees. The future of these attempts to limit fees by Biden's administration and the CFPB itself is now on shaky ground. With the impending power shift to Republicans, who have traditionally opposed the CFPB, in Washington this January, the efforts may face further opposition. Earlier this year, Trump advisor and billionaire Elon Musk suggested the redundant nature of the bureau and called for its removal.