“The Biden-era CFPB overdraft rules will harm consumers that should be protected,” Sen. Tim Scott said.
The U.S. House of Representatives voted to overturn rules that limit the fees banks charge for overdraft services. The measure is awaiting approval from President Donald Trump.
“We would like to thank Chairman French Hill, Financial Services Committee for his leadership in this effort in the House. We look forward to President Trump signing this resolution and completely overturning this false rule.”
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First of all, they managed to limit the fee to the upper limit at $5. This was the estimated CFPB, at a level that most banks could cover the costs associated with their overdraft programs. The second option was to cap the fees with an amount that only covered the cost and loss of service.
For banks who wanted to profit from overdraft services, they had to set their fees based on a third option that considered overdrafts as a loan. As a result, the institution is obligated to comply with established rules of lending, including disclosure of applicable interest rates.
At the time, CFPB Director Rohit Chopra said, “If it’s too long, the biggest banks have used legal loopholes that have drained billions of dollars from American savings accounts.”
“The CFPB is cracking down on these excess junk charges and demanding that major banks be clean about the interest rates they are charging on overdraft loans,” he said.
The agency estimated that the rules would reduce the savings of $5 billion in overdraft fees to customers.
Speaking on the Senator’s floor on the day the bill was passed in the room, Scott said the rule was part of a “politically motivated ‘junk fee’ conversation” that former President Joe Biden kicked off.
“Some people say, ‘What is an overdraft fee?’ Your bank account is above zero, you will have to pay the fee and your bill will be paid.
“So, when we start this fee structure cap, we start eliminating overdrafts. We start eliminating the possibility that people will decide to continue using their resources in the most effective way.”
Important Services for Americans
The Consumer Bankers Association (CBA) praised the House resolution for passing, and CEO Lindsey Johnson called Biden-era regulations on key financial products, such as overdrafts, “the false rules imposing government price control.”
Johnson, who calls the regulations “deeply flawed and harmful,” said millions of Americans rely on overdraft services to pay for essentials and emergency services. This includes 1 in 5 people who have no access to credit.
“The Biden-Chopra government’s price control was an illegal overdue in the CFPB’s authority to limit consumer choices and undermine financial inclusion,” she said.
“We look forward to the resolution moving forward on President Trump’s desk. His signature will allow consumers to continue access to this important financial lifeline.”
More than a quarter of Americans with checking accounts paid overdraft fees each month, according to the Consumer Financial Services Company Bankrate.
Such charges averaged $30 per transaction, with prices rising to $38. This is an average annual cost of around $360 for overdraft fees for people using the service once a year, once a month.
Customers who have used the overdraft facility more than four times in the past year said they have no credit options.
“Overdraft services remain valuable priority options for unwanted alternatives: payday loans, car title loans, or pawns. They say these non-bank alternatives for overdrafts are not only taken away from the high levels of protection consumers expect from highly regulated banks, but are also significantly more expensive.
