The Consumer Financial Protection Bureau (CFPB) announced proposed changes to overdraft fees at the largest US banks, following two proposals from the Biden Administration. While not eliminating overdrafts entirely, the rules aim to lower costs for consumers.

The measures would apply to insured institutions with over $10 billion in assets, targeting 175 biggest banks. One proposal focuses on overdraft penalty fees, barring banks from charging more than $14. The other would require banks to manage overdraft fees like credit card loans.

Yahoo Finance's David Hollerith break down the details.

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Editor's note: This article was written by Angel Smith

Video Transcript

RACHELLE AKUFFO: The Consumer Financial Protection Bureau is proposing a new rule, one that would sharply limit overdraft charges at big banks and credit unions. Now, the rule could save households up to $3.5 billion a year in fees.

Let's bring in Yahoo Finance's David Hollerith to discuss what it might mean for the banks. And we know that this is something President Biden has been trying to push for, trying to cut some of these fees here.

DAVID HOLLERITH: Yeah, Rachelle. I mean, over the past six months, big banks have mainly been sweating these regulations that have come from the Fed back in July. That's called Basel endgame. And regulators have been trying to push that proposal through. The ball is now in their court.

And it's expected to dampen earnings for the future for these banks. This new rule you're talking about on overdraft fees could act as a similar damper on earnings. Banks have relied on overdraft fees as one piece of their income stream for a long time.

And that's sort of been under threat for a while. But it does still remain to be seen with this rule how much these overdraft fees do get capped or if the rule gets approved. Some big banks also in recent years have actually sharply slashed their overdraft fees like Citigroup and Bank of America. So we'll be watching to see how this rule plays out and whether or not it becomes a serious thing that the big banks begin talking about.

AKIKO FUJITA: Yeah, David, you mentioned the potential impact to bank earnings there from these proposed rules. Do we have any idea how significantly it could weigh on them?

DAVID HOLLERITH: Not as much now. You know, mainly what's going on is that banks are trying to focus on the Basel rules. Those are also pretty difficult to predict how they would impact capital. But what banks are largely doing is they're setting aside the maximum amount they would need. Now, again, the ball is still in the Fed's court. So they're waiting to see whether or not those rules come in as proposed or if they're not changed further.