As the Trump administration continues to dismantle the Consumer Financial Protection Bureau, Republican lawmakers have set their sights on reversing a major CFPB rule. Two key legislators have introduced a resolution to repeal the $5 cap on bank overdraft fees, which was enacted last December and set to take effect this October.
The regulation would have required banks to either charge a $5 overdraft fee or limit the fee to an amount that covered the lender’s costs. It would apply to banks and credit unions with at least $10 billion in assets.
The CFPB adopted the rule in the final months of the Biden administration as part of its campaign against junk fees. House Financial Services Committee Chairman French Hill (R-Ark.) and Senate Banking Committee Chairman Tim Scott (R-S.C.), co-sponsors of the resolution to overturn the rule, argue that contractually agreed-upon payment incentives promote financial discipline and responsibility.
Although the CFPB reported that overdraft fees average $35, some large banks have already reduced or eliminated such fees in recent years. For example, Bank of America lowered its overdraft fees from $35 to $10 in 2022, and Ally Bank eliminated them entirely in 2021.
“In the past, many large banks made significant changes to their overdraft and NSF programs due to increased consumer backlash and competition from new nonbank companies, despite there not being new regulation,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Market pressures continue to be an important factor in shaping financial institutions’ strategies.”
Other CFPB Rules at Risk
A similar rule, passed last March, would cap most credit card late fees at $8, down from the current average of $32.
However, the rule is currently in limbo. A federal judge in Texas blocked it from taking effect until a lawsuit contesting the rule is resolved. The trade associations that brought the suit argue that the rule violates the Credit Card Accountability and Disclosure Act, which allows card issuers to impose reasonable penalty fees.
Another potential reversal is the rule banning the inclusion of consumers’ medical debt on their credit reports, set to take effect on March 17. Rep. Hill has said the rule “will drive up costs to any American seeking medical care and have a devastating impact on consumers’ access to healthcare.”
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