US bank stocks are in focus this morning after the Consumer Financial Protection Bureau announced a new rule that significantly limited their ability to charge an excessive overdraft fee.
The regulator expects its new rule to save American consumers up to $5 billion per year.
“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,” Rohit Chopra – the director of CFPB said in a statement on Thursday.
Here’s what the new CFPB overdraft rule entails
Chopra blasted the US banks for “exploiting a legal loophole” to siphon billions of dollars from American consumers for years.
Banks have so far been charging an average of $35 fee per transaction. But the regulator’s new rule now leaves them with the following three options:
- Charge an overdraft fee of $5.0 only
- Charge a fee to covers your incurred costs only
- Charge any fee but be upfront about the interest rate on the overdraft loan
Note that the Dow Jones US Banks Index is up some 35% versus the start of this year at writing.
US banks to challenge the new overdraft rule
CFPB expects its new rule to go live next year on October 1st.
But it will likely have to first go through stiff opposition from the largest US banks that have a history of hampering the regulator’s efforts aimed at humbling their robust toplines.
For example, the Consumer Financial Protection Bureau previously moved to limit the credit card late fees at $8.0 per incident.
But the American Bankers Association (ABA) secured a block on that rule from a federal court in May.
So, whether or not the new overdraft rule will succeed in taking effect in the final quarter of 2025 is anybody’s guess at present.
Are US banks stock well-positioned for 2025?
The news arrives about a month before the US banks are scheduled to report their quarterly earnings.
What’s also important to consider is that President-elect Donald Trump is set to take office in January – and the outlook for bank stocks under the new government is quite positive, as per RBC analyst Gerard Cassidy.
Cassidy expects “a few people to be removed from the regulatory agencies like the CFPB” once Trump is sworn into office next month.
He may “put in a more pro-banker at the OCC” as well, the analyst argued in a recent interview with CNBC.
All in all, he sees the regulatory framework under the Trump administration to be a positive for the US banks that have already been in a sharp uptrend over the past 14 months.
Since October of 2023, the DJUSBK has rallied a whopping 85%.
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