House votes to end cap on overdraft fees. Here's what it could mean for Long Islanders

A Biden-era federal rule that would have capped bank overdraft fees at $5 and was expected to save Americans billions annually was struck down Wednesday by the GOP-controlled House of Representatives in a largely party-line vote.

Long Island's two Republican House members voted to rescind the rule, which had been finalized in December by the Consumer Financial Protection Bureau during the closing weeks of then-President Joe Biden's administration. The region's two Democrats voted against the bill. The GOP-controlled Senate voted last month to overturn the rule.

President Donald Trump is expected to sign the legislation, which would rescind the overdraft fee rule before it was scheduled to take effect in October.

Here's everything you need to know about the bill and how it could affect Long Islanders.

What is an overdraft fee?

Overdraft fees occur when consumers do not have enough money in their account to cover a transaction.

The cost for overdrafts varies by bank, but typically runs around $35 per transaction, although they cost the banks a fraction of that amount, federal regulators said.

Lauren Saunders, associate director at the Boston-based National Consumer Law Center, which supported the rule, said Wednesday's vote means big banks can continue taking in a combined $5 billion in overdraft fees annually.

"This is a common sense rule that reduces most overdraft fees to $5, provides options to have your overdrafts covered, and still allows banks to make a profit," Saunders said in an interview.

What would the regulation have accomplished?

The rule would have limited the ways large banks and credit unions with more than $10 billion in assets can charge for overdrafts. 

Banks and credit unions would have had three options: charge customers a flat overdraft fee of $5; set a fee that covers their costs and losses or to continue charging overdraft fees at current rates — typically around $35 — as long as those lenders give customers notifications similar to those associated with credit cards. 

The CFPB had estimated the rule, which was challenged in court by banking trade groups, would save American households $5 billion a year.

But Lindsey Johnson, president and chief executive of the Washington, D.C.-based Consumer Bankers Association, said in a statement Wednesday that the rule was "deeply flawed and harmful to the very people it claims to help. Both chambers of Congress voting to overturn this onerous rule marks a significant victory for millions of Americans — especially the one in five without access to credit — who rely on overdraft services to pay for essentials and cover emergency expenses."

Nadine Chabrier, senior policy counsel at the Washington, D.C.-based Center for Responsible Lending, said people earning below $65,000 annually are twice as likely to pay overdraft fees than those with higher incomes.

"This sends an unacceptable message to large banks that they can continue charging exorbitant fees for very small transactions with no consequences whatsoever," Chabrier said in an interview. "That really hurts consumers during a time when they're concerned about keeping every dollar in their pocket."

What do Long Island banks have to say about the legislation?

Industry experts said Long Islanders are especially exposed to overdraft fees because the area is heavily served by Chase and Wells Fargo — which led the industry in overdraft revenue, with each collecting about $1 billion in annual fees.

Neither bank responded to requests for comment on Wednesday's vote.

Some other major banks, however, said they've lowered or eliminated their overdraft fees.

Citibank said it was first large national bank to remove overdraft fees in 2022. Bank of America said it lowered overdraft fees from $35 to $10 in 2022, while also eliminating its non-sufficient fund fee — issued after a payment gets declined because the account lacks sufficient funds — said spokesman Bill Halldin.

How did Long Island's congressional delegation vote on the bill?

Both of Long Island's Republican House members, Andrew Garbarino of Bayport and Nick LaLota of Amityville, voted to nullify the rule, while Democrats Laura Gillen of Rockville Centre and Tom Suozzi of Glen Cove voted to maintain the regulation.

"How can you claim you're trying to make things more affordable or that you're trying to address inflation and then increase costs to everyday Long Islanders," Suozzi said in a statement.

Gillen added in a statement that "working families in my district are struggling to put food on the table and afford health care. They cannot afford excessive fees in the midst of a cost-of-living crisis."

Also in a statement, Garbarino said he was "against usurious fees. However, a Federal Reserve Bank of New York report found that these fee caps would actually reduce financial inclusion. ... Today’s vote was about reining in regulatory overreach and protecting access to the financial tools millions of Americans depend on."

In a statement, LaLota said "overdraft protection should remain available for hardworking Americans who rely on it." He added that the bill will "expand consumer banking choice and prevent unnecessary financial burdens — especially for Long Islanders, who already face the highest effective tax burden in the country."

By Robert Brodsky

robert.brodsky@newsday.com@BrodskyRobert

Robert Brodsky is a breaking news reporter who has worked at Newsday since 2011. He is a Queens College and American University alum.