The U.S. Senate passed a resolution last week to overturn the Consumer Financial Protection Bureau’s (CFPB) rule that would cap overdraft fees at $5 for large banks and credit unions.
The overdraft rule mandated that banks and credit unions with more than $10 billion in assets would have three options when a consumer overdraws on their account.
One, they can choose to charge $5; two, they can continue to offer overdraft as a courtesy by charging a fee that covers no more than costs or losses; or three, they can continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate.
The final rule was expected to add up to $5 billion in annual overdraft fee savings to consumers, or $225 per household that pays overdraft fees.
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” CFPB Director Rohit Chopra said back in December. “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.”
But the new resolution, sponsored by Sen. Tim Scott (R-SC), overturns the rule by a vote of 52-48 with Sen. Josh Hawley (R-MO) the only Republican dissenting vote.
Scott said the rule would have led to reduced access to credit and financial services for consumers and resulted in more unbanked Americans.
“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,” Scott said on the Senate floor.
The Consumer Bankers Association (CBA) voiced it support for overturning the rule.
“We commend Senate Republicans for voting to protect consumers’ access to overdraft services—particularly those who lack access to credit and use overdraft to pay for necessities like food and utilities,” CBA President and CEO Lindsey Johnson said. “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.”
The resolution now moves to the House.