Trade Associations Sue to Block CFPB Overdraft Rule

Four trade associations and three banks are pursuing legal action against the Consumer Financial Protection Bureau’s (CFPB) final rule on overdraft services, which was released Thursday (Dec. 12).

In their lawsuit, the organizations allege that the CFPB exceeded its regulatory authority with this new regulation and that it did not appropriately consider how its actions will harm consumers, the Consumer Bankers Association (CBA) said in a Thursday press release.

The four associations pursuing the legal action are the CBA, the American Bankers Association (ABA), America’s Credit Unions and the Mississippi Bankers Association.

The three banks joining the associations in the lawsuit are Arkansas-based Arvest Bank, Mississippi-based Bank of Franklin and Mississippi-based The Commercial Bank.

In addition to filing their complaint, the plaintiffs will seek a preliminary injunction barring the CFPB from implementing the new rule until the court makes a final decision in the case, according to the release.

“While it is unfortunate, CBA had no choice but to pursue legal action to counter the CFPB’s blatant statutory overreach with its misguided rule to ensure consumers continue to have access to liquidity through overdraft services,” CBA President and CEO Lindsey Johnson said in the release.

When announcing its new overdraft fee regulations for large financial institutions Thursday, the CFPB said it aims to close what it called an “outdated overdraft loophole” in lending laws.

The new rule, set to take effect Oct. 1, 2025, applies to banks and credit unions with assets exceeding $10 billion. It requires these institutions to choose one of three options for their overdraft programs: cap overdraft fees at $5; set fees to cover only costs and losses; or comply with standard lending laws, including interest rate disclosures.

The rule addresses an exemption dating back to 1969 when the Federal Reserve Board excluded overdraft services from Truth in Lending Act provisions, the CFPB said in a Thursday press release.

“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,” CFPB Director Rohit Chopra said in the release.

The CFPB’s move may set up legal jousting in the courts and may have a series of negative ripple effects for consumers as banks consider offsetting the impact of new regulations, PYMNTS reported Thursday.