Senate Votes to Repeal CFPB’s $5 Cap On Bank Overdraft Fees

The Consumer Financial Protection Bureau’s $5 cap on bank and credit union overdraft fees finalized toward the end of the Biden administration is one step closer to elimination after the US Senate voted to repeal it.

The Senate voted 52-48 on Thursday on a measure (S. J. Res. 18) from Banking Committee Chairman Tim Scott (R-S.C.) to disapprove the CFPB’s regulation under the Congressional Review Act. Sen. Josh Hawley (R-Mo.) joined with Democrats voting against it.

“Overturning the Biden CFPB’s overdraft fee structure is good for consumers,” Scott said in remarks on the Senate floor.

The CFPB finalized its $5 overdraft cap in December. The rule, part of the Biden administration’s campaign against “junk fees,” is also the target of a banking industry lawsuit.

The House Financial Services Committee on March 5 approved a companion measure (H. J. Res. 59) from Chairman French Hill (R-Ark.) to repeal the overdraft rule.

The 1996 CRA gives Congress a 60-day window to repeal federal regulations with a simple majority vote in each chamber and the president’s signature. The clock resets in a new session of Congress for rules finalized toward the end of the previous congressional session.

Republican lawmakers are also eyeing CRA measures to repeal the CFPB’s larger participant rule for digital payment companies and its ban on the use of medical debt in consumer credit reports.

The overdraft rule bars banks and credit unions with more than $10 billion in assets from charging overdraft fees above $5 unless they can prove higher fees are necessary to cover the costs of covering customer overdrafts.

The rule was meant to curtail the average $35 charge Americans face when they overdraw their bank accounts—a cost higher than most debit-card overdrafts themselves, which are typically less than $26, the agency said at the time.

Bank of America Corp. already caps overdraft fees at $10, while some banks such as Citigroup Inc. and Capital One Financial Corp. have eliminated them altogether.

“The CFPB’s rule imposes reasonable limits that protect consumers from unfair fees while enabling banks to cover their costs,” said Chuck Bell, the advocacy program director at Consumer Reports. “Repealing the CFPB’s overdraft fee limits will hurt working families who are already struggling with high prices and inflation.”

The American Bankers Association, the Consumer Bankers Association, America’s Credit Unions, the Mississippi Bankers Association, and three small banks sued to block the rule just hours after the CFPB finalized it.

The industry plaintiffs claimed the CFPB exceeded its authority by determining overdraft protection was a credit product covered by the 1968 Truth in Lending Act.

The CFPB moved to stay the litigation amid an agency-wide work freezeinstituted by acting Director Russell Vought, prompting a pair of consumer groups to jump in to defend the rule.