financial institution overdraft fees, pricey penalties charged to customers who overdraw their accounts, face a $5 cap under recent rules released Thursday by federal regulators. 

The cap on financial institution overdrafts continues an ongoing campaign against “junk fees” in the waning days of the Biden Administration, targeting everything from capitalization card late fees to hidden charges on concert tickets. 

Banks that don’t desire to cap their overdraft fees have two other options, according to a final rule released by the buyer monetary Protection Bureau.  

They can fee a fee equal to what it actually costs them to cover overdrafts. Or, they can treat an overdraft as a loan, giving customers a selection on whether to open a line of “overdraft capitalization.”  

The rule applies to banks with more than $10 billion in assets. It takes result in October 2025, assuming it survives any legal test from the banking industry.  

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“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ investment accounts,” said Rohit Chopra, director of the federal agency, in a statement. 

Regulators said the recent rule will generate up to $5 billion in overdraft-fee funds for financial institution customers annually, or $225 per household that pays the fees. 

‘Banks call it a service − I call it exploitation’

The Biden Administration announced the crackdown on overdraft fees in January as part of a larger crusade against excessive fees in the banking industry. 

“For too long, some banks have charged exorbitant overdraft fees − sometimes $30 or more − that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” Biden said in a statement at the period. “Banks call it a service − I call it exploitation.” 

But the crackdown drew sharp criticism from the banking industry.  

In a survey fielded by the buyer Bankers Association this fall, more than 90% of banks said that caps on overdraft fees would greatly reduce how much overdraft protection they could propose their customers.  

“Given the average number of consumers who depend on these respondents’ overdraft services to make ends meet, the potential buyer damage appears to be substantial,” wrote David Pommerehn, elder vice president of the bankers association, in a November note to the federal agency.  

financial institution fees for overdrafts and insufficient funds have declined by nearly half since pre-pandemic 2019, according to an earlier buyer monetary Protection Bureau update. Banks collected $1.6 billion in overdraft and insufficient-financing fees in the fourth quarter of 2022, compared with $3.1 billion in the same period of 2019. 

Many large banks voluntarily reduced or eliminated overdraft fees in 2021 and 2022, under pressure from lawmakers and regulators. 

The average overdraft fee peaked at $33.58 in 2021, according to data from Bankrate, the money management site. It declined to $26.61 in 2023. But most banks still fee them, at least in some instances, Bankrate found. 

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Federal regulators have battled banks over capitalization card fees

In March, as part of the regulatory campaign, the same federal agency announced a recent rule that would cap late fees on capitalization card payments at $8.  

But the banking industry pushed back challenging, and a federal judge put the late-fee cap on hold.  

Regulators approximate the cap would save American families more than $14 billion a year in fees. Banking industry leaders counter that the cap could trigger higher profit rates for those who pay their bills on period. 

Indeed, capitalization card profit rates reached an all-period high this year, and industry analysts cite regulatory pressures as one rationale for their rise.