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national consumer law center
New Rule From Agency Trump Wants Destroyed Would Save Consumers $5 Billion Per Year in Overdraft Fees
One advocate called the CFPB's new rule "a major milestone in its effort to level the playing field between regular people and big banks."
Dec 12, 2024
The Consumer Financial Protection Bureau, one of President-elect Donald Trump's top expected targets as he plans to dismantle parts of the federal government after taking office in January, announced on Thursday its latest action aimed at saving households across the U.S. hundreds of dollars in fees each year.
The agency issued a final rule to close a 55-year-old loophole that has allowed big banks to collect billions of dollars in overdraft fees from consumers each year,
The rule makes significant updates to federal regulations for financial institutions' overdraft fees, ordering banks with more than $10 billion in assets to choose between several options:
- Capping their overdraft fees at $5;
- Capping fees at an amount that covers costs and losses; or
- Disclosing the terms of overdraft loans as they do with other loans, giving consumers a choice regarding whether they open a line of overdraft credit and allowing them to comparison-shop.
The final rule is expected to save Americans $5 billion annually in overdraft fees, or about $225 per household that pays overdraft fees.
Adam Rust, director of financial services at the Consumer Federation of America, called the rule "a major milestone" in the CFPB's efforts "to level the playing field between regular people and big banks."
"No one should have to pick between paying a junk overdraft fee or buying groceries," said Rust. "This rule gives banks a choice: they can charge a reasonable fee that does not exploit their customers, or they can treat these loan products as an extension of credit and comply with existing lending laws."
The rule is set to go into effect next October, but the incoming Trump administration could put its implementation in jeopardy. Trump has named billionaire Tesla CEO Elon Musk to co-lead the Department of Government Efficiency, an advisory body he hopes to create. Musk has signaled that he wants to "delete" the CFPB, echoing a proposal within the right-wing policy agenda Project 2025, which was co-authored by many officials from the first Trump term.
"The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they're charging on overdraft loans."
"It is critical that incoming and returning members of Congress and President-elect Trump side with voters struggling in this economy and support the CFPB's overdraft rule," said Lauren Saunders, associate director at the National Consumer Law Center (NCLC). "This rule is an example of the CFPB's hard work for everyday Americans."
In recent decades, banks have used overdraft fees as profit drivers which increase consumer costs by billions of dollars every year while causing tens of millions to lose access to banking services and face negative credit reports that can harm their financial futures.
The Federal Reserve Board exempted banks from Truth in Lending Act protections in 1969, allowing them to charge overdraft fees without disclosing their terms to consumers.
"For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans' deposit accounts," said CFPB Director Rohit Chopra. "The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they're charging on overdraft loans."
Government watchdog Accountable.US credited the CFPB with cracking down on overdraft fees despite aggressive campaigning against the action by Wall Street, which has claimed the fees have benefits for American families.
Accountable.US noted that Republican Reps. Patrick McHenry of North Carolina and Andy Barr of Kentucky have appeared to lift their criticisms of the rule straight from industry talking points, claiming that reforming overdraft fee rules would "limit consumer choice, stifle innovation, and ultimately raise the cost of banking for all consumers."
Similarly, in April Barr claimed at a hearing that "the vast majority of Americans" believe credit card late fees are legitimate after the Biden administration unveiled a rule capping the fees at $8.
"Americans pay billions in overdraft fees every year, but the CFPB's final rule is putting an end to the $35 surprise fee," said Liz Zelnick, director of the Economic Security and Corporate Power Program at Accountable.US. "Despite efforts to block the rule and protect petty profits by big bank CEOs and lobbyists, the Biden administration's initiative will protect our wallets from an exploitative profit-maximizing tactic."
The new overdraft fee rule follows a $95 million enforcement action against Navy Federal Credit Union for illegal surprise overdraft fees and similar actions against Wells Fargo, Regions Bank, and Atlantic Union.
Consumers have saved $6 billion annually through the CFPB's initiative to curb junk fees, which has led multiple banks to reduce or eliminate their fees.
"Big banks that charge high fees for overdrafts are not providing a courtesy to consumers—it's a form of predatory lending that exacerbates wealth disparities and racial inequalities," said Carla Sanchez-Adams, senior attorney at NCLC. "The CFPB's overdraft rule ensures that the most vulnerable consumers are protected from big banks trying to pad their profits with junk fees."
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'Freedom From Medical Debt' Campaign to Launch With Virtual Town Hall
The new push is led by Our Revolution along with Rep. Ro Khanna and Sen. Bernie Sanders, Medicare for All supporters who are working on legislation to tackle medical debt.
May 08, 2023
"I'm 72 and now live with my daughter after losing everything because of medical bills. I had $250K saved up for retirement and then disaster hit—several bouts of cancer and a stroke in 2009."
That's the story of Arizonan D'Anne MacNeil, a patient advocate and member of Our Revolution—which is working with U.S. Rep. Ro Khanna (D-Calif.), Sen. Bernie Sanders (I-Vt.), the National Consumer Law Center, and Tzedek D.C. on a new campaign.
The "Freedom From Medical Debt" initiative launches Monday with a virtual town hall at 8:30 pm ET.
\u201cAmericans hold $195 billion in medical debt. It should be 0. \nDon\u2019t miss our LIVE Town Hall to End Medical Debt with US Rep. @RoKhanna and Our Revolution patient advocates, hosted by me, LIVE this Monday, 5/8, 8:30 pm ET!\nhttps://t.co/iiAJf2AuF6\u201d— Joseph Geevarghese (@Joseph Geevarghese) 1683209883
"I wouldn't owe anything if hospitals didn't gouge patients," said Mary Willis of Texas. "The cost of an MRI in the hospital was eight times the cost of an outpatient MRI and 80 times outsourced MRIs. I owe over $8,000."
The virtual town hall is set to feature similar stories—including that of Washingtonian Kristin Noreen, who "barely survived" being hit by a vehicle while on her bicycle in 2010. After enduring a brain injury and having her hand amputated and reattached, Noreen is still paying off medical bills and for pain treatments not covered by insurance.
Fellow patient advocate and Our Revolution member Elizabeth McLaughlin of Indiana, who received a $20,000 bill for an emergency visit in 2015, also plans to join the town hall, along with Khanna.
"We need to strategize for legislation Bernie Sanders and I are doing and figure out how we finally end medical debt in this country," Khanna said in a Monday video promoting the event. The lawmakers have worked together for years; Khanna co-chaired Sanders' 2020 presidential campaign and both support Medicare for All, for which the senator has long led the fight on Capitol Hill.
In a Saturday email about the town hall, Our Revolution—which came out of Sanders' 2016 presidential run—said that as the senator and Rep. Pramila Jayapal (D-Wash.) "prepare to reintroduce Medicare for All in Congress, we are organizing people struggling with medical debt to speak up and fight for healthcare justice."
\u201cNo one should go bankrupt because they can\u2019t pay their doctor bills. Yet medical debt is the number #1 cause of bankruptcy in the US and nearly 100,000,000 people carry medical debt.\u201d— Ro Khanna (@Ro Khanna) 1683580725
The Hill, which first reported on the town hall, noted that in addition to backing Khanna and Sanders' forthcoming bill, patient advocates are hoping to pressure President Joe Biden "to use executive action to help stop price gouging for vulnerable patients, end a variety of predatory debt collection tactics, and ensure that people seeking medical assistance have financial aid and free or reduced-price care available."
Highlighting that "medical debt is the number one reason for personal bankruptcies in the United States," Our Revolution executive director Joseph Geevarghese told the outlet, "We can stop that and the president has the power."
As part of the campaign "calling for Congress and the president to deliver systemic solutions to this massive healthcare injustice," organizers have launched a website to collect medical debt stories and hope to get at least one from every congressional district.
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Cancel All Corinthian Colleges Student Debt
In February, 15 students who had attended Corinthian Colleges Inc. launched the nation's first student debt strike. The students declared that they would no longer repay their loans on the grounds that Corinthian -- a network of for-profit schools including Everest, Heald and WyoTech -- had used fraudulent marketing and recruitment practices and that the credits and degrees they earned were worthless. Soon the Corinthian 15 became the Corinthian 100, and the 200. Groups such as the American Federation of Teachers and Jobs With Justice endorsed their cause.
Jun 23, 2015
In February, 15 students who had attended Corinthian Colleges Inc. launched the nation's first student debt strike. The students declared that they would no longer repay their loans on the grounds that Corinthian -- a network of for-profit schools including Everest, Heald and WyoTech -- had used fraudulent marketing and recruitment practices and that the credits and degrees they earned were worthless. Soon the Corinthian 15 became the Corinthian 100, and the 200. Groups such as the American Federation of Teachers and Jobs With Justice endorsed their cause.
Corinthian filed for bankruptcy in May, and the Department of Education has now announced a plan to cancel the debt of some former Corinthian students.
This is a significant victory for the strikers. It shows that the tactic of debt refusal, when strategically deployed, can get results. But the department hasn't done nearly as much as it could, or should, to set things right.
When Education Secretary Arne Duncan revealed the debt relief plan, he blasted schools such as Corinthian for bringing "the ethics of payday lending into higher education." These schools, Duncan said, "prey on the most vulnerable students and leave them with debt that they too often can't repay." Indeed, a third of Corinthian students came from families that earned less than $10,000 per year.
A close look at the fine print, however, reveals that Duncan and his staff are presenting a stopgap measure as a meaningful solution. Instead of issuing a blanket discharge to all former Corinthian students, the department offers a byzantine process that will likely leave out many students.
Most students will have to apply individually, and be required to submit transcripts and other documents that may be hard to come by because their campuses have shut down or been sold. They must also spell out what parts of a state law Corinthian violated in their particular case. These students are not lawyers, and they should not be required to do the job of a federal agency with a fleet of attorneys on staff.
The government makes an obscene profit from the student loan program -- an estimated $110 billion over the next decade... Why not divert some ... to make scammed students whole?Students, already drowning in debt, will soon find themselves tied up in red tape, and that's only if they know the relief program exists in the first place. The Education Department has announced no plans to alert students about their options, even though it acknowledged to the New York Times that in past cases of college closures, only 6% of students have typically asked for debt cancellation.
It's clear from the long trail of allegations against Corinthian that it was a "bad actor," a term federal officials used in a meeting with strikers and organizers. The state of California has been investigating the company since at least 2007, when a last-minute settlement stopped an impending lawsuit. Since then, dozens of state and federal authorities have investigated Corinthian. The federal Consumer Financial Protection Bureau sued the company in 2014, accusing it of operating a predatory lending scheme.
But the Education Department is largely to blame for the problem of unscrupulous, for-profit schools. For decades, the government has funded billions of dollars in grants, loans and GI Bill benefits to students at these institutions. A 2012 Senate Committee found that 86% of the revenue at 15 of these publicly traded schools came from taxpayers. Corinthian alone got $1.4 billion a year -- much of which flowed to conservative think tanks and public relations firms, according to investigative reporter Lee Fang.
In 2014, the Education Department accused Everest College of lying to students about job placement rates and briefly cut off federal funding to Corinthian. After the company said it could not survive even a few weeks without the public money, the Education Department continued funding Corinthian while the network sought a buyer.
The Education Department is aware that its actions in this case will set a precedent. There are other for-profit colleges that are teetering on the brink of collapse. The Securities and Exchange Commission, for instance, recently announced it was investigating ITT Tech for fraud. And in May, the Art Institutes announced it would shut down more than a dozen campuses.
It's clear that the Department of Education does not want to be in the position of having to cancel potentially millions of student loans. But anything less would be morally unacceptable. The government makes an obscene profit from the student loan program -- an estimated $110 billion over the next decade. That may be justifiable when students actually receive an education, but not when they're defrauded. Why not divert some of the $110 billion to make scammed students whole?
According to attorneys at the National Consumer Law Center, the Education Department has the legal power to issue a broad cancellation of Corinthian loans. Reaching into its own coffers to erase the debts of the hundreds of thousands of former Corinthian students is both lawful and the right thing to do.
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