The Senate voted 52-48 on Thursday to overturn a Consumer Financial Protection Bureau rule that would limit overdraft fees for credit unions and major banks, the Washington Examiner reported. This comes as President Donald Trump's administration reviews the agency for cuts.
The original rule capping the fees was enacted during then-President Joe Biden's term. With the Senate approving the resolution, introduced by Banking Committee Chairman Tim Scott (R-SC), the measure will go to the House of Representatives.
While limiting the fees is sold as a measure to help the poor, many believe that it would disincentivize banks from doing business with financially risky customers and be a net negative to the impoverished. Scott said as much when introducing the resolution.
"This overdraft conversation is a critically important conversation if you are like me, a guy who grew up in poverty, a single-parent household, who understands the difficulty, the challenge, of single moms making those ends meet. I want every single hardworking American to have access to our financial system," Scott said.
Scott's Senate resolution was a remedy for the unintended ramifications of the cap while a similar resolution was introduced in the House of Representatives for the same reason. House Financial Services Chairman French Hill (R-AR) called the fee cap a CFPB overreach.
"As I have consistently said, the CFPB needs guardrails on its enforcement and rulemaking powers, and this rule is another clear example of why. The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice," Hill said in a statement.
The original rule came about when Biden, to buy votes, fixated on eliminating so-called "junk fees." One type he addressed was overdraft fees, which he capped as low as $5 for institutions with $10 billion in assets, was done ostensibly to help the poor, who are disproportionately the ones left paying these fees, according to the Associated Press.
The fees charged for an overdraft, which happens when a debit comes through for more than the balance in the account, were upwards of $35. Biden called them "exploitive," though it's a way for banks to collect on poor financial risks that would otherwise be turned away.
Biden's CFPB focused solely on the dollar amount of the fees, touting $5 billion in annual overdraft fees that would not have to be paid. This translated to $225 per household for those whose balances typically hovered between $237 and $439, which make up 70% of overdraft fees paid.
Even before the latest resolutions undoing Biden's legacy, Trump signaled that there could be cuts to the CFPB. Last month, Elon Musk's Department of Government Efficiency met with federal employees from the CFPB to let them know most of the 1,700 employees would be cut as they were "winding down" its operations, NBC News reported.
One employee, who identified himself by the pseudonym Alex Doe, said that he had orders to clean house. "My team was directed to assist with terminating the vast majority of CFPB employees as quickly as possible," he told the news outlet.
The three-phase plan would go as many other agencies with probationary and term employees the first out, followed by massive cuts to 1,200 jobs. "Finally, the Bureau would ‘reduce altogether’ within 60-90 days by terminating most of its remaining staff," Doe explained.
The ultimate goal was to get to just a handful of employees who might be absorbed into another agency. "One Senior Executive said that CFPB will become a ‘room at Treasury, White House, or Federal Reserve with five men and a phone in it,'" Doe claimed.
It is a good decision to allow banks to do business in a way that keeps them solvent so they can continue to service all kinds of customers. The fact that Trump is also looking to cut the CFPB is a bonus for businesses and consumers.
