NEW YORK – In a significant legislative move, the House of Representatives voted on Wednesday to overturn a recent regulation intended to limit bank overdraft fees to $5, aligning its decision with the Senate’s earlier action. The regulation, proposed during the final days of President Joe Biden’s term, was anticipated to save consumers significant sums, but now it faces potential nullification pending President Donald Trump’s signature. Securing the vote by a narrow margin of 217-211, the resolution now goes to the White House.
Republicans opposed the regulation, calling it “disastrous.” They argued that capping overdraft fees could prompt banks to remove overdraft protection, thereby restricting Americans’ access to credit. “It’s competition and innovation, not government-imposed price limits, that will best ensure consumers can access affordable financial services,” stated Arkansas Rep. French Hill, who chairs the House Financial Services Committee.
At present, major banks across the nation accumulate roughly $8 billion annually from overdraft fees, as reported by both the Consumer Financial Protection Bureau (CFPB) and public bank records, without any legal cap in place for these charges.
Previously, banks and financial groups contested the rule, claiming it would lead consumers to rely on riskier, less-regulated financial services. Republicans acted to overturn the rule using the Congressional Review Act, a protocol established in 1996 that empowers Congress to reverse recently established regulations.
In contrast, Democrats objected strongly, asserting that the regulation would benefit consumers unable to afford such fees. California Rep. Maxine Waters, serving as the top Democrat on the Financial Services panel, remarked on the widespread consumer frustration stating that Americans are “fed up with these junk fees” and are eager for change.
The regulation was slated for implementation in October as part of President Biden’s agenda to cut excessive consumer fees across everyday services, including those tied to banking. The CFPB predicted the regulation could save consumers approximately $5 billion annually in overdraft fees, equating to around $225 per household frequently encountering these fees. Biden had criticized the charges, which often reach $35 per transaction, as “exploitative,” and consumer advocates stressed their burden on the financially vulnerable.
Representative Rashida Tlaib, a Democrat from Michigan, criticized the Republican-led campaign to overturn the rule, suggesting it “shamefully targets the American public.”
When banks extend short-term funds to consumers whose accounts are overdrawn, consumers are liable to repay both the overdrawn amount and an additional fee, which can sometimes exceed the initial debit. A minor expense like a $3 coffee can end up exceeding $30 due to accumulated fees.
Overdraft fees originated in an era of frequent check usage, acting as a means to prevent transaction denial due to timing issues. However, banks have systematically increased these charges in the early parts of the 21st century. According to the CFPB, about 70% of overdraft fees impact customers maintaining account balances between $237 and $439.
Chuck Bell, the advocacy program director at Consumer Reports, addressed lawmakers, asserting that the rule addressed an outdated loophole, previously permitting banks to charge excessive fees, thereby gaining profits from their most financially stressed customers. Overdraft fees have evolved from an occasional courtesy to a significant profit source for banks.
The rule, once finalized, would have offered banks three compliance paths: imposing a flat $5 fee, a fee reflective of their costs, or any fee with full disclosure akin to standard loan terms, including an annual percentage rate (APR). This rule would have affected large financial institutions with assets over $10 billion, covering the country’s largest banks while they had previously challenged the CFPB on these and related credit card fee regulations.
Without the availability of overdraft protection, many Americans would potentially turn to higher-risk lenders that do not fall under strict banking regulations, noted Rob Nichols, president and CEO of the American Banking Association. Nichols emphasized the rule could have pressured banks to reconsider or even discontinue offering overdraft protection as currently known.