The Client Monetary Safety Bureau on Wednesday proposed a rule that might sharply restrict overdraft fees at America’s largest banks and credit score unions, a change that the company estimated may save households as much as $3.5 billion a yr in charges.

The proposal, which should undergo a remark interval and wouldn’t take impact till at the very least late 2025, goals to finish the $35 overdraft charge that has change into the usual at many banks.

The bureau’s rule would give banks just a few choices for setting a decrease charge. They may cost a break-even charge — based mostly on the person financial institution’s personal prices — or a benchmark charge decided by the bureau. The company has proposed a spread of $3 to $14 for the benchmark.

Alternatively, the banks may deal with overdrafts as a line of credit score and supply the disclosures required by the Fact in Lending Act, together with rates of interest.

“Many years in the past, overdraft loans acquired particular remedy to make it simpler for banks to cowl paper checks that had been typically despatched via the mail,” stated Rohit Chopra, the buyer bureau’s director. “Right now, we’re proposing guidelines to shut a longstanding loophole that allowed many giant banks to remodel overdraft into a large junk charge harvesting machine.”

The proposed rule would apply solely to establishments with property of $10 billion or extra, a class that features roughly 175 of the nation’s greater than 9,000 banks and credit score unions. These giant suppliers gather about two-thirds of all overdraft charge income, the bureau stated.

The buyer bureau has been laying the groundwork for greater than a decade for a rule curbing overdraft charges, releasing studies analyzing the charges and discussing its issues with banking trade executives and commerce teams.

Anticipating the crackdown, some giant banks have already slashed their charges. In 2022, Citigroup eradicated the charges and Financial institution of America minimize its cost to $10 from $35. Customers paid $7.7 billion that yr in overdraft charges, down from $12.6 billion in 2019, in accordance with the buyer bureau’s estimates.

Banking commerce teams are fiercely against stricter overdraft guidelines. “Overdraft safety charges are clearly disclosed, extremely regulated and supply a service that an awesome majority of customers discover precious,” Rob Nichols, the chief govt of the American Bankers Affiliation, stated final month.

His group and two others sent Mr. Chopra a letter this month urging the bureau to convene a small-business assessment panel to touch upon the rule, a step the bureau is required to take earlier than it adopts rules that might considerably have an effect on small corporations.

“No matter which banks are straight topic to the bureau’s rule, all banks would face market strain to adapt their practices to the bureau’s rule,” the commerce teams wrote.

The bureau stated this week that it might not convene that requested panel, as a result of its rule would apply solely to giant banks and credit score unions.

Client advocates praised the proposal. “Overdraft charges aren’t a lot a helpful service as a profitable revenue heart that’s largely underwritten by probably the most economically weak customers,” stated Carter Dougherty, a spokesman for People for Monetary Reform. “This reform is a step in getting banks again to offering good service and away from gotcha charges.”

The bureau will settle for public feedback on the proposed rule till April 1, after which it might begin the ultimate steps of adopting the adjustments.