Senate votes to overturn rule that capped bank overdraft fees at $5

The U.S. Senate voted Thursday on a Republican-backed measure to overturn a Biden-era rule that would cap bank overdraft fees at $5 later this year.

Banking advocates laud the effort, saying it could keep some consumers from turning to payday lenders. But consumer groups and U.S. Sen. Raphael Warnock, D-Ga., who pushed hard for the fee cap, said the change could add financial hardship to Americans who are already dealing with economic uncertainty.

“If we leave this $5 cap for overdraft fees in place, guess what, (banks will) still be doing just fine,” Warnock told The Atlanta Journal-Constitution. “But if we overturn it, families that are already being squeezed by inflation and by tariffs and a whole range of bad policies that are putting them in jeopardy are going to be squeezed even more.”

In 2023, big banks made $5.8 billion from overdraft and nonsufficient fund fees, according to the Consumer Financial Protection Bureau. CFPB announced a new rule capping those fees in December,shortly before Joe Biden left office, that is slated to take effect in October.

The rule gave banks three options: cap overdraft fees at $5; if offering overdraft as a service, rather than for profits, charge a fee that covered the bank’s costs and losses; or if looking to make a profit off an overdraft loan, disclose the loan terms to consumers beforehand.

For households that pay overdraft fees, the rule was expected to save them $225 a year.

But bank advocates in Georgia say the CFPB’s rule could force many Georgia banks to reconsider offering overdraft services and that could push people to payday loans or check-cashing services.

“Overdraft protection is an important tool that helps Georgia families cover unexpected expenses without the headache of bounced checks, late fees or having to turn to more expensive, less regulated sources of emergency cash,” Tripp Cofield, president and CEO of the Georgia Bankers Association, said in a statement. Cofield said banks have already made big strides in reducing overdraft fees and is urging Congress to overturn the CFPB rule.

In February, Republicans in the House and Senate introduced a resolution that would stop the rule from going into effect and block the CFPB from issuing a substantially similar rule in the future. The Senate voted 52-48 in favor of the resolution.It is unclear when the House could take up the measure.

“The Biden Administration’s CFPB routinely targeted legitimate payment incentives and practices in pursuit of political headlines over sound policies,” U.S. Sen. Tim Scott, R-S.C., said in a statement when he introduced the Senate resolution.

Warnock voted against the measure and said Republicans are siding with big banks instead of American families.

“The Trump administration, they ran on this idea that they were going to stand up for ordinary families. We see who they are prioritizing. They’re prioritizing people who look like them, people who have more than enough,” he said.