Congress Moves to Overturn CFPB’s Cap on Overdraft Fees

Certain members of the House and Senate introduced a bill that aims to overturn the Consumer Financial Protection Bureau’s final rule that required banks with at least $10 billion in assets to cap overdraft fees at $5.

The leaders of the proposed legislation argue that the original rule, which aimed to protect consumers from high fees, had negative impacts on consumers and diminished their financial protections. “The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice,” said House Financial Service Committee Chairman French Hill. “Our [rule] will help overturn this harmful rule and is a next step toward ensuring the CFPB halts all ongoing rules until it answers to Congress, just like any other non-independent federal agency.”

The effort to repeal the overdraft fees cap has received much support from various Bankers Associations. “Millions of hardworking Americans, including the one in five without access to credit, rely on overdraft services as a valuable financial lifeline, yet the Biden-Chopra CFPB’s overdraft rule threatens to cut off their access to this essential bank product,” Consumer Bankers Association President Lindsey Johnson said in a statement.

The overdraft rule was finalized in December under former CFPB Director Rohit Chopra. According to Chopra, this rule was purposed to ensure that junk fees were not the source of a billion-dollar revenue stream. The CFPB perceives the rule as an effort to balance the power between those charging the junks fees and those being charged.

Although the bill is aimed at protecting consumers, the House and Senate’s efforts to nullify the rule has received some criticism. Many consumer advocates hope that the bill does not get passed. They view the overdraft cap as means to protect lower-income families from “junk fees.”

“For too long, banks have gouged economically vulnerable consumers with costly overdraft fees that make it harder for them to stay on track financially,” said Chuck Bell, advocacy program director at Consumer Reports. “The CFPB’s new rule imposes reasonable limits on overdraft fees so they are in line with a bank’s actual costs instead of a way for banks to pad their profits at the expense of those least able to afford it.”

Various banking industry groups have challenged the rule in court on the basis that the CFPB did not have proper authority to impose such a rule. The case remains open but is expected to be thrown out now that the House and Senate intend to invalidate it.

Although the rule seeks to invalidate the overdraft fees rule, it has not effectively done so yet. This bill was enabled by the Congressional Review act, which permits Congress to either nullify or approve new agency rules. The Act authorizes Congress to pass a joint resolution of disapproval if it seeks to invalidate the rule. If the joint resolution of disapproval approved by both houses of Congress and signed by the President, or if Congress successfully overrides a presidential veto, the rule at issue cannot go into effect or continue in effect.