The House voted Wednesday to overturn a rule that would have limited bank overdraft fees to $5, following the Senate in moving to dismantle the regulation that the Biden administration had estimated would save consumers billions of dollars.
The resolution killing the rule, which passed the House 217-211, will now head to the White House for President Donald Trump’s signature. Republicans argued that the “disastrous” regulation issued in the final days of President Joe Biden’s term would have forced banks to stop offering overdraft protection altogether and made it harder for Americans to access credit.
“Competition and innovation, not government-mandated price caps, remain the best way to ensure consumers have access to affordable financial products and services,” said Arkansas Rep. French Hill, the chairman of the House Financial Services Committee.
Currently, the nation’s biggest banks take in roughly $8 billion in the charges every year, according to data from the Consumer Financial Protection Bureau and bank public records. Right now, there is no cap on the overdraft fees that banks can legally charge.
Banks and banking groups had previously sued over the rule, arguing that it would have led to consumers leaning on worse, less-regulated services. Republicans voted to undo the regulation under the Congressional Review Act, a 1996 law that allows Congress to reverse recently adopted rules.
Democrats strongly opposed the effort and said the rule would help consumers who can’t afford the fees. California Rep. Maxine Waters, the top Democrat on the Financial Services panel, said that Americans are “fed up with these junk fees” and want to get them under control.
The rule, scheduled to go into effect in October, was part of Biden’s effort to reduce fees that hit consumers on everyday purchases, including banking services. The CFPB estimated the rule would have saved consumers about $5 billion in annual overdraft fees, or $225 per household that typically experiences the fees. Biden had called the fees, which can be as high as $35 per transaction, “exploitative,” and consumer advocates point out they hit banks’ most cash-strapped customers.
The Republican effort to overturn the rule is “shamefully targeting the American people,” said Rep. Rashida Tlaib, D-Mich.
When a bank temporarily lends a consumer money after their account has reached a zero balance, the consumer is typically responsible for paying back both the overdrawn amount and an additional fee, which can be more than the original amount charged. In one example, a $3 cup of coffee can end up costing someone more than $30.
Overdraft fees originated during a time when consumers wrote and cashed checks more frequently — so that the checks would clear instead of bouncing, if there was an issue of timing — but banks steadily increased the fees in the first two decades of the 2000s. A majority of overdrafts — about 70% — are charged to customers with average account balances between $237 and $439, according to the CFPB.
“The overdraft fee rule close(d) a paper-check era loophole that has allowed big banks to trick people into paying excessive overdraft fees and earn billions in profits from some of their most vulnerable customers,” wrote Chuck Bell, the advocacy program director at Consumer Reports, in a letter to lawmakers. “Overdraft fees have morph(ed) from an occasional, ad hoc courtesy provided to consumers to a line of business.”
Under the finalized rule, banks would have been able to choose from three options: charging a flat overdraft fee of $5, charging a fee that covered their costs and losses, or charging any fee so long as they disclosed the terms of the overdraft loan the way they would for any other loan, typically expressed as an annual percentage rate, or APR.
The finalized rule applied to banks and credit unions with more than $10 billion in assets, which included the nation’s largest banks. Banks had previously sued the CFPB over these rules and caps on credit card late fees.
“Without access to overdraft protection, many Americans would be driven to less regulated and higher risk non-bank lenders to cover unexpected or emergency expenses,” said Rob Nichols, American Banking Association president and CEO, in a statement. Nichols said the rule could have led banks to “limit or eliminate overdraft protection as we know it.”
