Overdraft fee capping, proposed by consumer agency, to be debated in Congressional committee

The House Financial Service Committee could move Wednesday toward nullifying a rule that would cap overdraft fees that are now as high as $35.

The rule, finalized by the Consumer Financial Protection Bureau in December and originally scheduled to go into effect in October, would have limited the ways large banks can charge for overdrafts. Under the newly finalized rule, banks will be able to choose from three options: they may charge a flat overdraft fee of $5, they may charge a fee that covers their costs and losses, or they may charge any fee so long as they disclose the terms of the overdraft loan the way they would for any other loan, typically expressed as an annual percentage rate, or APR. 

Sen. Chuck Schumer (D-N.Y.), at a Monday event in New Hyde Park, described the move as part of a "quiet plan" that could expand to include a raft of banking and credit card fees regulated by the CFPB.

"The fees shrink income. That hurts Long Island’s economy," Schumer said. "It’s just a way the banks were ripping people off." In some cases, he said, banks stacked overdrafts, charging hundreds of dollars in fees even if account holders were overdrawn by a small amount.

In February, the Trump administration virtually shuttered the CFPB, calling the agency created to protect consumers after the 2008 subprime lending crisis "woke" and "weaponized."

Passing a committee vote Wednesday would clear the way for a full vote by the House. The Senate would need to approve its own version and the final bill would need President Donald Trump’s signature.

Schumer said overturning the rule would allow banks to keep $5 billion in fees, an average of $225 per year per household.

In an emailed statement, Rep. Andrew Garbarino (R-Bayport), the only member of Long Island’s Congressional delegation who sits on the committee, said that fee caps could actually make it harder for low-income households to access essential financial services. He cited a 2021 Federal Reserve Bank of New York report that concluded that "while fee caps succeed in reducing overdraft fees, they also trigger adjustments by banks that limit the financial inclusion of low-income households" and that "policies promoting increased competition and transparency may be more effective in keeping overdraft fees in line with costs and risk."

Garbarino described the rule as an "11th hour act of regulatory overreach ... Overturning it is about stopping that overreach and making sure Americans can still access the financial tools they rely on."

In an email from his press office, U.S. Rep. Tom Suozzi (D-Glen Cove) said: "Why would Members of Congress work to increase overdraft fees? How can you claim you are trying to make things more affordable or that you are trying to address inflation and then affirmatively increase costs to everyday Long Islanders? Just awful.”

Long Island's other two House members, Laura Gillen (D-Rockville Centre) and Nick LaLota (R-Amityville), did not comment on the potential rule change.

Schumer, the Senate minority leader, said the House measure would likely move out of committee and to a full floor vote within a month. 

The rule applies to banks and credit unions that have more than $10 billion in assets, which includes the nation’s largest banks. Banks have previously sued the CFPB over these rules and caps on credit card late fees.

Banking industry groups and some Republican leaders criticized the rule.

"The CFPB’s final rule on overdraft services is an illegal and harmful overreach" that would harm "those who lack access to credit and use overdraft to pay for things like food and utilities," said Weston Loyd, a spokesman for the Consumer Bankers Association, in a statement Monday. The organization described overdraft services as a lifeline for 26 million Americans without credit access.

In February, House Financial Services Committee Chairman French Hill (R-Ark.) and Senate Banking Committee Chairman Tim Scott (R-S.C.) introduced resolutions to overturn the rule. In a news release at the time, they said the rule amounted to a government price control that would limit Americans’ access to financial services.

"Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility," the release said.

Overdraft services originated in the 1990s, when, for a fee, banks covered checks and debit card purchases made without sufficient funds. The practice became a potent revenue source for the industry, generating close to $11 billion to $12 billion annually from 2015 to 2019, according to a 2024 CFPB report. Those revenues dropped in 2020 and 2021, probably because stimulus checks pushed up checking account balances. In 2023 they amounted to $5.8 billion.   

A 2017 study by the agency found that frequent overdrafters — accounts with more than 10 overdrafts or non-sufficient funds in a year — made up just 9% of all accounts at banks in the study but paid 79% of fees.

Lauren Saunders, associate director at the National Consumer Law Center, said in an interview that Long Islanders were particularly exposed to overdraft fees because the region is served by Chase and Wells Fargo, banks she said led the industry in overdraft revenue. Each charges consumers about $1 billion a year in fees, she said. Other banks no longer charge those fees but still provide overdraft protection, she said.

Neither Chase, nor Wells Fargo, responded Monday to emails seeking comment.

Saunders  described overdraft fees as "a profit center for banks. They are exploiting people."

An issue brief by the Law Center noted that many debit card purchases triggering overdraft fees were under $26 — less than the $35 fee commonly charged — and were repaid within three days. Banks have also manipulated the order of purchases to increase fees and charged overdraft fees when the account was not overdrawn, according to the brief.

To undo the rule, finalized during the waning days of the Biden administration, Republican lawmakers are using the Congressional Review Act. The act was enacted in the mid-1990s and gives Congress the authority to overrule federal agency rules and regulations with a simple majority vote in the House and Senate. Overruling also bars agencies from issuing a "substantially similar" rule, according to the George Washington University Regulatory Studies Center. Its powers are limited to a certain period after an agency finalizes its regulations, usually around 60 legislative days.

The law was barely used for decades, but use surged during the first Trump and Biden administrations.

With AP