The U.S. House voted to overturn a rule limiting the fees banks charge for overdraft services, with the measure now awaiting approval from President Donald Trump.
“I’m grateful to House Financial Services Chairman French Hill for his leadership on this effort in the House, and I look forward to President Trump signing this resolution and overturning this misguided rule once and for all.”
First, they could cap the fee at $5, which CFPB estimated was the level at which most banks could cover their costs associated with the overdraft program. The second option was to cap the fee at an amount that only covers the costs and losses of the service.
For banks wishing to profit from overdraft services, they were required to set fees under the third option, which considers the overdraft as a loan. As a consequence, institutions would be obliged to comply with established rules for lending, including disclosing the interest rates applied.
At the time, CFPB director Rohit Chopra said that “for far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts.”
“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,” he said.
The agency estimated the rule to notch up $5 billion in annual overdraft fee savings to customers, which comes to $225 per household that pays such fees.
Speaking on the Senate floor on March 27, the day the bill was passed in the chamber, Scott said the rule was part of a “politically motivated ‘junk fee’ conversation” kicked off by former President Joe Biden.
“Some will say, ‘What is an overdraft fee?’ Your bank account goes beyond zero, you have to pay a fee, your bills are paid. Some people will say that people who live paycheck to paycheck use their overdraft option to pay their rent,” he said.
“So, when you start capping this fee structure, you start eliminating overdraft. You start eliminating the possibility of people working paycheck to paycheck to make the decision to continue to use their resources in the most effective way.”
Critical Service for Americans
The Consumer Bankers Association (CBA) applauded the passage of the resolution in the House, with CEO Lindsey Johnson terming the Biden-era regulation a “misguided rule to impose government price controls” on a critical financial product such as overdraft.Calling the regulation “deeply flawed and harmful,” Johnson said that millions of Americans rely on overdraft services to pay for essentials and emergency services. This includes one in five individuals who do not have access to credit.
“The Biden-Chopra government price controls were an illegal overreach of the CFPB’s authority that would restrict consumer choice and undermine financial inclusion,” she said.
“We look forward to the resolution advancing to President Trump’s desk, where his signature would ensure that consumers can continue to access this important financial lifeline.”
According to consumer financial services company Bankrate, more than a quarter of Americans with checking accounts paid overdraft fees every month.
Such fees averaged roughly $30 per transaction, with charges going up to $38, it said. This translates into an average annual cost of around $360 on overdraft fees for a person who uses the service once a month for a year.
Customers who used overdraft facilities four or more times over the past year said that they had no credit alternatives.
“Overdraft services remain a valued and a preferred option to less desired alternatives, namely payday loans, car title loans, or pawn. These non-bank alternatives to overdraft not only deprive consumers of the high level of protections they’ve come to expect from a well-regulated bank, they’re also significantly more expensive,” CBA said.
