The U.S. House passed two resolutions of disapproval nullifying rules finalized by the Consumer Financial Protection Bureau (CFPB) under the Biden-Harris administration with strong support from Republicans.
The chamber voted 217-211 to invoke the Congressional Review Act (CRA) to repeal the bureau’s overdraft fee rule, which would cap maximum overdraft charges at $5. The vote came less than two weeks after the Senate approved the measure in a 52-48 decision along party lines.
Lawmakers also voted 219-211 to nullify the CFPB’s larger participant rule, which defines general-use digital consumer payment applications as nonbanks subject to supervision.
The bureau finalized the statutorily-mandated rule in November last year, following a lengthy comment and review process during which many banks expressed support for holding nonbanks to the same regulatory standards as traditional depository institutions.
“Today’s vote cements a regulatory blind spot for payment apps and leaves people with little recourse to resolve a dispute beyond asking for help from their chatbot,” Consumer Federation of America Director of Financial Services Adam Rust said in a statement. “Supervision is an essential tool for regulators to preserve our privacy and hold Big Tech accountable for fraud. It makes no sense to thwart supervision when the rate of fraud on payment apps is skyrocketing. Without supervisory authority, regulators cannot provide continuous oversight of regulated entities and correct mistakes quickly and privately.”
The financial services sector was generally quiet regarding the vote to nullify the larger participant rule. However, they had plenty to say about the overdraft rule’s anticipated demise.
“Today’s House vote affirms what lawmakers, economists, and consumers have been saying for months: the Biden-Chopra CFPB’s overdraft rule is deeply flawed and harmful to the very people it claims to help,” Consumer Bankers Association Lindsey Johnson said in a statement. “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.”
Other financial services trade groups welcomed the decision as well, such as the American Bankers Association (ABA), the Independent Community Bankers of America, and America’s Credit Unions.
“Consumers have indicated time and time again that they value and appreciate this highly regulated service and don’t want banks to discontinue offering it because of a rule that imposes unlawful government price caps,” the ABA wrote in a statement. “Congress has acted decisively to right that wrong and ensure America’s banks can continue offering this important, optional service consumers rely upon to meet their short-term financial needs. We appreciate the administration’s support and look forward to President Trump quickly signing this resolution into law.”
The debate over whether capping overdraft fees would be beneficial or detrimental to low- and moderate-income individuals has raged since the CFPB issued a notice of proposed rulemaking on the issue in spring of 2024, with consumer advocates’ arguments largely contradicting those of financial services providers.
“Republicans in Congress had a chance to put $5 billion back in the pockets of working people, including servicemembers, by dramatically cutting big bank overdraft fees. Instead, they sided with Wells Fargo, Chase, and Navy Federal Credit Union, allowing them to use abusive overdraft fees to pad their profit margins,” National Consumer Law Center Associate Director Lauren Saunders said in a statement. “With tariffs and a looming recession threatening to push prices higher and squeeze wages, voters need the relief they were promised on the campaign trail, not a Congress that works for banks and their shareholders.”
The Federal Reserve Bank of New York conducted a study examining the effects of usury fee caps on the financial marketplace in regions where they have been tested. The study noted many unbanked individuals cited overdraft fees and non-sufficient fund fees as reasons for believing they could not afford to have a bank account.
It also found unbanked people often end up turning to alternative sources of credit, such as payday loans, when their funds run short of their living expenses. These options often come with high interest rates that have been known to get consumers caught in cycles of debt from which it can be hard to break free.
This is one of the main reasons financial services providers argue overdraft fees associated with free checking accounts are beneficial to low- and moderate-income individuals, as they are a safer and better regulated option than the alternatives.
By imposing a limit on overdraft fees, opponents to the CFPB overdraft rule have asserted financial institutions will raise depositor fees and reduce credit availability to off-set the financial costs. The Fed explained in its study that providing overdraft credit is “risky” for banks.
“Research on usury limits and bank pricing decisions suggests, to the contrary, that overdraft fee caps might limit financial inclusion,” the Fed study stated. “Overdrafts are de facto credit and fee caps, like other usury limits, may cause rationing of credit to riskier depositors. Accounts may therefore become less valuable to depositors who benefit from the liquidity, credit provision and protection from penalty fees when they bounce payments. Banks, for their part, may also increase other deposit fees and tighten terms when overdraft fees are capped. Those spillovers from fee caps to deposit supply could lead to more, rather than fewer, unbanked households.”
The Fed found 30 million bank accounts were closed between 2001 and 2005 due to unpaid overdrafts. The average loss per closure in 2007 was $310, with such losses accounting for 12.6 percent of total loan losses at financial institutions.
Both resolutions will now move on to President Donald Trump for approval before they can be signed into law.