Consumers stand to lose $5 billion a year if the House goes along
Surprising no one, the U.S. Senate voted today to repeal a Biden-era rule adopted by the Consumer Financial Protection Bureau that limits steep overdraft fees charged by large banks and credit unions.
The banking industry has ardently supportedthe nullification effort, calling on its army of Capitol Hill lobbyists to argue that charging high overdraft feesprovides a safety net for many Americans and that limiting feeswould cause banks to stop covering overdrafts.
The CFPBs actions are government price controls that hurt consumers rather than protect them, saidHouse Financial Services Committee Chairman Rep. French Hill (R-Ark.).
He, along with Sen. Tim Scott (R-S.C.) has been leading the charge for the nation's banks. The overdraft rule was yet another example of government overreachmany consumers depend on overdraft services to make ends meet, and limiting them will push Americans to riskier financial products, said Scott.
Fees "far exceed" banks' costs
Undoing the CFPBs limits will allow these financial institutions to levy heavy charges on customers who temporarily overdraw their accounts with fees that far exceed the costs required to cover the transaction, according to Consumer Reports.
If the House passes a similar repeal resolution, vulnerable consumers who incur thesefees stand to lose out on an estimated $5 billion in annual savings. The CFPB had estimatedthat the newrule would save $225 per year for households that pay overdraft fees. A vote in the House is expected as early as next week.
Too many banks and credit unions pad their profits by charging excessive overdraft fees that make it harder for economically vulnerable consumers to make ends meet, said Chuck Bell, advocacy program director at Consumer Reports.
The CFPBs rule imposes reasonable limits that protect consumers from unfair fees while enabling banks to cover their costs. Repealing the CFPBs overdraft fee limits will hurt working families who are already struggling with high prices and inflation.
Large banks typically charge $35 for an overdraft today, even though the majority of consumers debit overdrafts are for less than $26 and are repaid in three days, which translates into an annual percentage rate (APR) of over 16,000 percent, according to the CFPB.
The burden of overdraft fees falls most heavily on low- and moderate-income customers who make under $65,000 a year. Black consumers are 69 percent more likely and Hispanic consumers are 60 percent more likely than white consumers to live in a household charged at least one overdraft or non-sufficient funds (NSF) fee in the past year.
The CFPBs rule curbs excessive overdraft fees in a flexible manner by giving banks and credit unions with more than $10 billion in assets the option of charging $5 or a fee that covers no more than costs or losses.
The rule gives big banks and credit unions a variety of options to cover overdrafts, including safer, more transparent overdraft lines of credit with no price limit and they comply with Truth in Lending Act disclosure requirements for loans like credit cards.
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Posted: 2025-03-27 18:20:20
