Republican bill could lead to higher overdraft fees

• Republicans introduced a bill to overturn a Consumer Financial Protection Bureau rule that sets bank overdraft fees at $5. That’s down from the current average of $27.
• The CFPB said the rule will save consumers $5 billion a year and protect them from “junk fees.”
• Republicans said if banks can’t charge large enough fees, they’ll cut people off when they need to pull more money from their account than they have.

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Republicans introduced a resolution to formally disapprove of a Consumer Financial Protection Bureau (CFPB) rule that sets bank overdraft fees at $5, down from the current average of $27. If the resolution is approved by Congress and signed by the president, it would stop the rule from taking effect.

What goals did the Biden administration have with this change?

Former CFPB Director Rohit Chopra announced the rule on Dec. 12, 2024, during the final weeks of the Biden administration. Chopra said it would save households that consistently pay overdraft fees $225 a year, for a total of $5 billion in annual savings.

“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” Chopra said at the time. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans.”

The rule is set to take effect in October 2025, and requires banks with more than $10 billion in assets to adopt one of three options for their overdraft programs: cap fees at $5, adjust fees to only cover costs and losses or disclose terms of overdraft loans.

Republicans who want to overturn the rule contend that those who overdraft regularly could be cut off if the banks can’t charge a large enough fee. Whenever they need more money than they have, the bank could decline the transaction.

What are lawmakers saying?

“The Biden administration’s CFPB routinely targeted legitimate payment incentives and practices in pursuit of political headlines over sound policies,” Senate Banking Committee Chairman Tim Scott, R-S.C., said. “The overdraft rule was yet another example – many consumers rely on overdraft services to make ends meet, and limiting this practice will push Americans to riskier financial products.”

The resolution has 27 cosponsors, all Republicans.

“As I have consistently said, the CFPB needs guardrails on its enforcement and rulemaking powers, and this rule is another clear example of why,” House Financial Service Committee Chairman French Hill, R-Ark., said. “The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice.”

Republicans tried to overturn multiple agency rules created during the Biden administration while he was in office, and the measures were approved in Congress. Of course, when they reached the former president’s desk, he vetoed them.