Lawmakers move to overturn CFPB’s overdraft rule

Republican lawmakers have introduced resolutions to nullify the Consumer Financial Protection Bureau (CFPB)’s overdraft rule, which was set to take effect on October 1 but is now under review by the agency’s new leadership.

The resolutions were introduced by House Financial Services Committee Chairman Rep. French Hill (R-Ark.) and Senate Banking Committee Chairman Sen. Tim Scott (R-S.C.) under the Congressional Review Act (CRA). If passed, these resolutions would void the CFPB’s rule and prevent similar regulations from being issued in the future.

What does the overdraft rule do?

The CFPB’s overdraft rule seeks to limit overdraft fees to $5 at financial institutions with more than $10 billion in assets, unless:

• Banks set a cap based on actual costs, or
• They treat overdraft payments as loans with full disclosures under the Truth in Lending Act and Regulation Z.

The rule was introduced under the Biden administration, aiming to protect consumers from excessive overdraft fees. However, it now faces potential delays or repeal as the CFPB’s new leadership reviews it. The agency has requested a formal delay until December 30 to allow for further evaluation.

Was the rule "overreach?"

“The overdraft rule was yet another example of government overreach—many consumers depend on overdraft services to make ends meet, and limiting them will push Americans to riskier financial products,” said Scott.

Hill echoed this concern, stating, “The CFPB’s actions are government price controls that hurt consumers rather than protect them.”

The banking industry supports the nullification effort, arguing that overdraft services provide a safety net for many Americans and that limiting fees would cause banks to stop covering overdrafts.

The rule protects low-income consumers, its supporters say

Consumer advocates argue that higher overdraft fees disproportionately affect low-income families who struggle to make ends meet.

“A vote against the overdraft rule is a decision to prioritize Wall Street’s profits above the needs of people living paycheck to paycheck,” said Adam Rust, Director of Financial Services at the Consumer Federation of America.

He added, “Instead of making life better for big banks, lawmakers should focus on helping everyday Americans.”

What happens next?

The resolutions must be passed by both the House and Senate and signed by the president to take effect. If they succeed, the CFPB’s overdraft rule will be permanently overturned, and banks will continue charging higher overdraft fees.

The debate underscores the ongoing battle between consumer protection efforts and financial industry interests, with potential long-term effects on banking policies and fees.