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

The House Financial Service Committee could move Wednesday toward nullifying a rule that would have capped 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. Banks could have charged a flat $5 fee, a fee that would cover their costs and losses, or any fee, provided they disclosed the terms of the overdraft loan as they would for any other loan.

Sen. Chuck Schumer (D-NY), at Monday morning event in New Hyde Park, described the move as part of a “quiet plan” to raise banking fees. “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, earning hundreds of dollars in fees even if account holders were overdrawn by a small amount.

Clearing the committee Wednesday would clear the way for a full vote by the House. The Senate would need to approve its own measure 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.

A spokeswoman for Rep. Andrew Garbarino (R-Bay Shore), the only member of Long Island’s Congressional delegation who sits on the committee, did not respond to a question about how he would vote. But Schumer, the Senate minority leader, said the 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 have 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, when 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, they said in a news release that it 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 fees originated during a time when consumers wrote and cashed checks more frequently — so that the checks would clear instead of bouncing, if there was an issue of timing — but banks steadily increased the fees in the first two decades of the 2000s. The fees disproportionately affect banks’ most cash-strapped consumers. A majority of overdrafts (70%) are charged to customers with average account balances between $237 and $439, according to the CFPB.

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.

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 are 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, 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