New Rule Limits “Gotcha” Overdraft Charges

Texas Appleseed and the Network of Texas Industrial Areas Foundation (IAF) Organizations commend the Consumer Financial Protection Bureau for issuing rules on December 11 to rein in excessive charges for overdrafts by the largest banks and credit unions. It is expected to save households nationwide over $5 billion, or an average of $225 in savings for people who experience overdrafts.

The new rule caps convenience overdraft fees at $5, with avenues to charge more based on true costs or through a line of credit with transparent terms. This closes a loophole that allows banks to charge customers high fees, typically $35 per overdraft.  

Overdraft charges impact many Texans. The Network of Texas IAF Organizations, in its comment letter supporting the rule proposal, highlighted some of its members' harmful experiences with overdrafts. One community leader from El Paso noted, “Getting hit with overdraft fees happens to almost everyone I associate with.” Another person from Central Texas shared, “I ended up lending [my brother] money to eat,” because of financial strain caused by overdraft charges. A blog post that Texas Appleseed released when the rule was proposed highlighted a personal story about how high overdraft fees almost pushed a young person to abandon the banking system altogether. 

“This rule addresses a long-standing problem. Penalty fees should not be a cash cow, as they often drain money from those who can least afford it,” said Ann Baddour, director of the Fair Financial Services Project at Texas Appleseed. 

Reverend Davis B. Price with the Network of Texas IAF Organizations, shared, “We work across the state to support a good quality of life for Texans. Extracting high fees, often for small mistakes, hurts those most in need. This rule brings relief and predictability for the many Texans who are struggling to meet their basic needs.”

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The Network of IAF Organizations in Texas is a network of non-partisan institutionally based community organizations whose purpose is to train leaders to organize families around issues that affect their quality of life. The network includes Communities Organized for Public Service/ Metro Alliance,  in San Antonio; Valley Interfaith in the Rio Grande Valley; The Metropolitan Organization in Houston; El Paso Interreligious Sponsoring Organization (EPISO), Central Texas Interfaith, Dallas Area Interfaith, The West Texas Organizing Strategy; Over 350 congregations and community organizations across Texas are represented in our organizations.

Texas Appleseed is a nonpartisan nonprofit focused on bringing about policies that are fair, just, and equitable for all Texans. Fueled by data, legal expertise, and a commitment to supporting vulnerable communities, our work has shaped hundreds of state and local policies and positively affected millions of Texans.