Senate Repeals Biden-Era Rule Capping Bank Overdraft Fees

The limit was part of the Biden administration’s broader campaign against ‘junk fees.’

A Bank of America customer uses an ATM at a branch office in San Francisco on July 14, 2021. Justin Sullivan/Getty Images

The Senate scrapped a rule finalized under former President Joe Biden capping bank overdraft fees.

In a 52-48 vote on March 27, lawmakers overturned the Consumer Financial Protection Bureau’s final rule, which would have limited overdraft charges to $5 for financial institutions with more than $10 billion in assets.

All but one Republican—Sen. Josh Hawley (R-Mo.)—supported Senate Banking Committee Chairman Tim Scott’s (R-S.C.) joint resolution rescinding the rule. Two independent senators also joined the 45 Democrats opposing S.J. Res. 18.

Scott stated on the Senate floor that eliminating the overdraft fee cap would be “good for consumers.”

“So, when you start capping this fee structure, you start eliminating overdraft,” he said. “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.”

Sen. Elizabeth Warren (D-Mass.), the ranking member on the Banking Committee, said that many banks are “squeezing families for far more than what it typically costs to offer these overdrafts.”

“Altogether, the CFPB’s rule saves American families up to $5 billion a year,” she said on the Senate floor. “Overturning this rule will make big banks richer and hard-working families poorer.”

Hawley defended the regulation, estimating that the rule saves the average American about $265 annually.

“I do not want to give big banks the ability to charge people outrageous sums of money,” Hawley said.

House Financial Services Chairman French Hill (R-Ark.) has introduced complementary legislation in the lower chamber. It has yet to receive a full floor vote.

“The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice,” Hill said in a February statement.

The War on ‘Junk Fees’

In December, the Biden administration finalized the overdraft fee rule as part of the former president’s broader initiative to eliminate “junk fees” in the financial sector and elsewhere in the marketplace. The CFPB projected that bank customers would save approximately $5 billion a year, or about $225 per household.

The finalized mandate, which was scheduled to take effect in October, faced a joint lawsuit, with complainants stating that the CFPB exceeded its regulatory authority.

Proponents say the measure was meant to reduce the financial burden imposed on low- and middle-income customers.

“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,” said then-CFPB Director Rohit Chopra in a December announcement.

Capping overdraft fees would limit the industry’s ability to offer overdraft coverage, critics said.

Lindsey Johnson, the president and CEO of the Consumer Bankers Association, applauded the Senate’s decision because it protects consumers’ access to overdraft services.

“This effort to invalidate the Chopra CFPB’s overdraft rule underscores the serious concerns lawmakers have about how this Biden-era rule will negatively impact millions of Americans’ ability to manage their own finances and the long-term damage that government-imposed price controls have on a highly-competitive financial services market,” Johnson said in a statement.

The Consumer Financial Protection Bureau building in Washington on Oct. 31, 2023. Madalina Vasiliu/The Epoch Times

Federal Reserve Bank of New York economists determined in a July 2023 paper that limiting overdraft fees can have unintended consequences by limiting financial inclusion and rationing credit to “riskier depositors.”

“We conclude that overdraft fee caps hamper, rather than foster, financial inclusion,” they wrote in the report.

A new survey for the American Bankers Association (ABA) found that 70 percent of respondents valued their bank’s overdraft protection. Additionally, more than two-thirds (68 percent) of consumers believe it is reasonable for financial institutions to charge a fee for an overdraft, compared to 23 percent who think it is unreasonable.

The polling data suggests the public understands current overdraft programs, says Rob Nichols, the president and CEO of ABA.

“The CFPB’s misguided rule would put those programs at risk by implementing a government price cap on overdraft fees, making overdraft protection almost impossible to offer,” Nichols said in a statement.