The Senate passed a resolution to nullify the Consumer Financial Protection Bureau’s (CFPB) final rule capping overdraft fees offered by financial institutions in a 52-48 party-line vote.
S.J. Res. 18, introduced by Senate Banking Committee Chair Tim Scott (R-S.C.), would invoke the Congressional Review Act (CRA) to overturn the CFPB’s final rule requiring banks with $10 billion or more in total assets to cap overdraft fees at $5 or institute a fee tailored to cover only their actual costs and losses associated with an overdraft. The rule would treat overdraft protection as a loan covered by the Truth in Lending Act (TILA).
The measure was a companion bill to a joint resolution passed by the House Financial Services Committee, 30-19, on March 21, which garnered strong industry support.
Scott reiterated claims that the rule was politically motivated and would result in more unbanked Americans, as well as fewer options for struggling consumers, if allowed to go into effect.
“When you start capping this fee structure, you start eliminating overdraft,” Scott said on the Senate floor. “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. Unfortunately, President Biden’s devastating economy has reverberated for years now.”
The financial services industry welcomed the passage of the Senate’s CRA resolution.
“This effort to invalidate the [Rohit] 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,” Consumer Bankers Association President and CEO Lindsey Johnson said in a statement.
Independent Community Bankers of America President and CEO Rebeca Romero Rainey said the rule violates the CFPB’s statutory authority under TILA and would have “harmful unintended consequences on all institutions and the consumers and local communities they serve,” if not repealed.
“Community banks provide a wide range of products and services in a competitive marketplace that customers may select to address situations in which they’ve overdrawn their account, including overdraft programs, free ad hoc solutions, alerts about their account status, account transfers, and more,” she added.
Consumer advocates pushed back, reasserting their position that the overdraft rule would prevent banks from profiting off struggling consumers and reversing it “will harm people for decades to come.”
“The overdraft rule prevents large banks from building profit centers on the struggles of working people,” Consumer Federation of America Financial Services Director Adam Rust said in a statement. “The CFPB wrote a common-sense rule that permits overdraft credit, but under terms that are fair and consistent with cost. Banking charters were never supposed to be a license to rip people off, but unfortunately, many banks rely on gotcha penalty fees to pad their profits, effectively diminishing the difference between insured depositories and payday lenders.”
The legislation will now need the approval of the full House to then be forwarded to President Donald Trump to be signed into law.