The battle over bank overdraft fees heated up yesterday when House Republicans passed a resolution to overturn the Consumer Financial Protection Bureau’s new overdraft rule. The vote, which fell largely along party lines, represents the latest clash between financial regulators and lawmakers over consumer protection in banking.
I’ve been tracking this legislation since it was introduced last month, and the intensity of the lobbying efforts from both banking groups and consumer advocates has been remarkable. As someone who’s covered Capitol Hill for nearly two decades, the partisan divide on financial regulation remains as stark as ever.
The CFPB rule, finalized in March, would have capped overdraft fees at $14 for most banks and credit unions, a dramatic reduction from the current average of $35. The agency estimated this would save consumers about $3.5 billion annually. CFPB Director Rohit Chopra called the fees “exploitation fees” when announcing the rule, arguing they far exceed the actual cost to banks of processing overdrafts.
“These are essentially junk fees that have become a major revenue stream for big banks,” Chopra said during the rule’s announcement. Analysis from the CFPB shows that just 9% of account holders pay 80% of all overdraft fees, suggesting the burden falls disproportionately on financially vulnerable consumers.
Republicans and banking industry representatives counter that the rule would actually harm consumers by reducing access to a service many rely on. Representative Patrick McHenry of North Carolina, who chairs the House Financial Services Committee, claimed during floor debate that “this rule would eliminate a financial lifeline for millions of Americans who occasionally need short-term liquidity.”
The American Bankers Association praised the House vote, stating that “Congress is rightly exercising its authority to prevent regulatory overreach.” The organization has consistently maintained that overdraft services represent a choice that consumers should be able to make.
Consumer advocates tell a different story. “This vote shows who Congress is really working for,” said Liz Zelnick of Americans for Financial Reform. “Overdraft fees target those who can least afford them, often triggering a cascade of financial problems for families living paycheck to paycheck.”
I spoke with several consumers during my reporting who have experienced multiple overdraft charges in a single day. Melissa Johnson, a single mother from Atlanta, told me she once incurred $175 in fees from five separate transactions that posted to her account on the same day when she was short by less than $100.
“I had no idea they were coming through in that order,” Johnson said. “It felt like they were deliberately trying to maximize the fees.”
The banking industry generated approximately $7.7 billion in overdraft fee revenue in 2023, according to S&P Global Market Intelligence data. While this represents a decline from pre-pandemic levels (approximately $11.7 billion in 2019), it remains a significant revenue source for many institutions.
The Congressional Review Act (CRA) resolution now moves to the Senate, where its future is uncertain. While Republicans have a narrow path to passage, President Biden has already promised to veto the measure if it reaches his desk.
Even with a presidential veto likely protecting the rule for now, the legal challenges are just beginning. Several banking industry groups have already filed lawsuits against the CFPB, arguing the agency exceeded its authority in setting specific fee caps.
The battle highlights the ongoing tension between the CFPB’s consumer protection mandate and industry concerns about regulatory overreach. Created in the aftermath of the 2008 financial crisis, the CFPB has remained controversial since its inception, with Republicans repeatedly attempting to curtail its powers.
For consumers, the practical implications of this political and legal battle are significant. If the rule survives, millions of Americans could see substantial savings on overdraft fees. If it’s overturned, the status quo would remain, with banks free to set overdraft fees at their discretion.
