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The Senate will abolish Biden-era rules and reduce bank overdraft fees

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The restrictions were part of the Biden administration’s broader campaign against “junk fees.”

The Senate has scrapped rules that were finalized under former President Joe Biden under bank overdraft fees.

On March 27, 52-48 votes, lawmakers overturned the Consumer Financial Protection Bureau’s final rules. This limits overdraft fees to $5 for financial institutions with assets of over $10 billion.

All Republicans except one – Sen. Josh Hawley (R-Mo.) – Supported a joint resolution by Senate Banking Committee Chairman Tim Scott (Rs.C.). Two independent senators also joined 45 Democrats against SJ Res. 18.

Scott said on the Senate floor that eliminating the overdraft fee cap is “consumer-friendly.”

“So, when we start this fee structure cap, we start eliminating overdrafts,” he said. “We’re beginning to eliminate the possibility that we’re paying to pay in order to make the decision to continue using our resources in the most effective way.”

Sen. Elizabeth Warren (D-Mass.), a ranking member of the Banking Committee, said many banks “shrink up much more families than what normally costs to provide these overdrafts.”

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“Overall, the CFPB rules save American families up to $5 billion a year,” she said on the Senate floor. “If we overturn this rule, the bigger banks will make richer, hardworking families poorer.”

Holy defended the regulations and estimated that the rules would save an average American of about $265 a year.

“I don’t want to give big banks the ability to charge people crazy amounts,” Holy said.

House Financial Services Chair French Hill (R-ARK.) introduced complementary laws in his sub-room. It has not yet received floor votes.

“The CFPB’s actions on overdrafts are another form of government price control that hurts financial protection and consumers who deserve greater choice,” Hill said in a February statement.

War with “junk fees”

In December, the Biden administration completed overdraft fee rules as part of the former president’s broader initiative to eliminate “junk charges” in the financial sector and elsewhere in the market. CFPB predicted that bank customers would save about $5 billion a year, or about $225 per household.

The final mandate, scheduled to come into effect in October, faces a lawsuit stating that the CFPB has surpassed regulatory authorities.

Advocates say the measure was intended to reduce the financial burden placed on low- and middle-income clients.

“The CFPB is cracking down on these excess junk charges and demanding that large banks be cleaner about the interest rates they are charging on overdraft loans.”

Critics said the overdraft fee cap limits the industry’s ability to provide overdraft coverage.

Lindsey Johnson, president and CEO of the Association of Consumer Banks, praised the Senate’s decision to protect consumers’ access to overdraft services.

“This effort to overdraft CHOPRA CFPB’s overdraft rules underscores serious concerns about how these Biden-era rules can negatively affect the ability of millions of Americans to manage their finances and how government-imposed price controls will negatively affect the long-term damages they face in the highly competitive financial services market,” Johnson said.
Washington's Consumer Financial Protection Bureau Building (Madalina Vasiliu/Epoch Times) on October 31, 2023

Washington’s Consumer Financial Protection Bureau building on October 31, 2023. Madalina Vasiliu/The Epoch Times

In a July 2023 paper, the New York Federal Reserve Bank of New York determined that limiting overdraft fees could have unintended consequences by limiting financial inclusion and limiting credit to “risk depositors.”

“We conclude that overdraft fee caps do not nurture them, but hinder financial inclusion,” they wrote in the report.

A new survey by the American Bankers Association (ABA) found that 70% of respondents rate bank overdraft protections. Furthermore, two-thirds of consumers (68%) believe it is reasonable for financial institutions to charge overdraft fees.

Voting data suggests that the public understands the current overdraft program, according to ABA president and CEO Rob Nichols.

“The CFPB’s false rules will put these programs at risk by implementing government price caps on overdraft fees.



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