New regulations will limit bank overdraft fees. Many banks have already done so.

The Consumer Financial Protection Bureau announced a rule today that will require banks and credit unions with more than $10 billion in assets to cap their overdraft fees. The new limit, with some exceptions, will be $5, which the CFPB said will save U.S. households billions of dollars annually. 

The thing is, the banking sector has been moving away from charging overdraft fees for a few years now. Bank of America slashed its fee back in 2022. Capital One and Citibank eliminated them entirely.

Even though we’ve seen a wave of big banks voluntarily ratchet back their overdraft fees, those moves weren’t entirely driven by altruism, said Julie Hill, dean at the University of Wyoming College of Law.

She said the CFPB has made it clear for years that it would be scrutinizing overdraft fees. So banks decided to just bite the bullet and act early.

Hill said it also helped that interest rates had been rising, so banks’ loans were pulling in more revenue.

In situations like that?

“Banks don’t really care that much whether they get income from fees, or income from interest,” she said.

Meanwhile, many people have been sitting on extra cash ever since the pandemic, said Chris Duncan, chief lending officer at La Salle State Bank in Illinois.

“We really saw, coming out of COVID, a pretty significant decline in overdraft activity in some of our customers,” he said.

Duncan’s bank is too small to be covered by the new overdraft rule. But it recently put a daily limit on overdraft fees, and it won’t charge any fee if a customer overdraws less than $10.

“We kind of always look at the regulations that are passed, and kind of assume that eventually those regulations will trickle down to banks our size,” he said.

That said, banks don’t want to entirely do away with overdraft fees, either.

When a customer overdraws their account, the bank is essentially lending them money to cover, say, an electric bill, said Robert James II, CEO of Carver Financial Corporation, a company with two community banks in Georgia and Alabama.

“That’s a service to you, that’s a service to the electric company, and ultimately, we’ve got to be able to earn something for being able to provide that service,” he said.

James said at his banks, customers have to opt in to overdraft services. And many do.

“In order to be able to make sure that they can essentially pay a certain bill, or meet an obligation, before they have access to their regular income,” he said.

And since many of his customers operate on limited incomes, James said he’s hoping to provide overdraft services for as long as he can.