Account holders may see higher overdraft costs after financial institutions secured a Senate victory on Thursday, overturning a Consumer Financial Protection Bureau rule designed to regulate overdraft fees. The decision could burden American families already facing financial hardships.
The New York Times reported that the resolution passed with Republicans holding a slim margin of 52-48 votes. Sen. Josh Hawley, R-Mo, was the only lawmaker to break with his party and oppose the measure.
What would the measure limit?
The CFPB’s rule would have limited the amount banks and credit unions could charge customers, preventing them from paying a $35 overdraft fee. As a result, it could have saved American households more than $5 million per year, according to the New York Times.
Overdraft protection typically allows account holders to make purchases that exceed the amount of their checking accounts. When it shows up as a negative balance, banks and credit unions can choose to cover the balance and charge a $35 overdraft fee. CNBC reported that Members can choose whether or not to enroll in the service that many financial institutions usually offer.
Sen. Tim Scott, R-S.C., sponsored the resolution under the Congressional Review Act, allowing Congress to vote on significant rules by the federal agencies before they take effect, according to the U.S. Government Accountability Office. Doing this will enable them to approve or disapprove the proposal under 60 days with a simple majority vote.
The Biden administration introduced the CFPB’s overdraft rule in December to curb “junk fees” from banks and financial institutions. On Wednesday night, Scott opposed the plan, which aimed to help consumers save money.
Scott said axing the CFPB’s rule is ‘good for consumers’
“President Biden’s politically motivated ‘junk fee’ conversation was not about helping consumers,” Scott, head of the Banking Chair Committee, said in a statement obtained by Politico.
“It was about trying to change the conversation away from the devastation that inflation was bringing to kitchen table after kitchen table after kitchen table all across America,” Scott added. “Overturning the Biden CFPB’s overdraft fee structure is good for consumers.”
Banks later sued, arguing the rule would prevent them from offering overdraft services. The Senate’s ruling does not make it law; it still requires approval from the House Financial Services Committee.
