By Ray Birch
WASHINGTON—The Senate voted 52-48 Thursday to repeal the CFPB’s overdraft rule, a controversial regulation that placed tight limits on what many financial institutions could charge for an overdraft.
The Senate’s vote now paves the way for quick passage of the bill by the House, nullifying the Bureau’s law. The elimination of the rule will return OD policy decision making to each financial institution, pushing aside tough decisions by banks and credit unions on the future of the service. But to think the CFPB’s efforts to shrink overdraft charges will have little effect is incorrect, analysts told CUToday.info, with one person saying the world of lower overdraft prices is here to stay.
The CFPB’s final rule, issued late last year, limited overdraft charges to $5 for FIs above $10 billion in assets. As CUToday.info has extensively reported, analysts predicted the CFPB's overdraft limit would trickle down to all FIs through competitive pressure, possibly forcing some credit unions and banks to discontinue the service. The rule was set to take effect on Oct.1, 2025.
As CUToday.info reported, Senate Banking Committee Chair Tim Scott Thursday led the way for S.J.Res.18, the joint resolution targeting the CFPB’s OD rule.
The resolution, passed under the Congressional Review Act, heads to the House, where the Financial Services Committee approved a companion bill earlier this month in a 30-19 vote. Along with repealing regulations, the CRA prohibits future administrations from introducing similar measures.
Dennis Dollar
Former NCUA Chairman Dennis Dollar emphasized the impact of the Senate’s decision.
“The importance of the possibility of a congressional overturn of the CFPB’s overdraft rule is that it completely takes the rule off the books—not simply delays its enforcement by executive action only to have it put back into play in the future under a new administration with a more activist CFPB director,” stated the principal partner at Dollar Associates out of Birmingham, Ala. “This congressional repeal means that a future CFPB will have to go back through the entire rulemaking process, knowing that the rule has been overturned by Congress previously as an overreach of agency authority.
“In the post-Chevron decision world that resulted from last year’s Supreme Court ruling, the congressional history that repealing the rule will establish can give a lot of credence to a future lawsuit—if the rule comes back at some future point in time—that Congress considers it an unseasonable regulatory overreach,” continued Dollar.
DCUC’s Perspective
“Obviously we're happy that the CRA passed the Senate and is on its way to the House and it looks like the House will be taking up that legislation next week,” said DCUC Chief Advocacy Officer Jason Stverak. “We are hopeful the House will pass it and send it to President Trump's desk for his signature. This is an incredibly important piece of legislation that will help roll back one of the pieces of overregulation that was put in place by the CFPB under the Biden Administration.”
Jason Stverak
Stverak said overturning the CFPB’s rule empowers credit unions and their members, “as democratically controlled member-owned institution, to set their own overdraft policy. We've had credit unions that have gone to zero. We have credit unions that have gone to $5. You have your credit unions that are at $10, $15 or $20. They need to do what is in the best interest of their individual credit union and do what supports their members, and not having a top down, one-size-fits-all decision made by a nameless, faceless bureaucrat in Washington who does not understand where members live.”
ACU Response
"America's Credit Unions supports using all tools available to pull back any overreach of the CFPB's statutory authority. The Bureau's overdraft rule is a solution in search of a problem, an attempt to eliminate a product deemed 'unsuitable' by Washington bureaucrats but vital to many credit unions' members," said Jim Nussle, America’s Credit Unions president/CEO. "Credit unions are the original consumer protectors that are serving forgotten communities across the country. We appreciate the Senate's action to stop regulatory overreach and preserve necessary financial products and services for hard working Americans."
No Return
Nullifying the CFPB’s OD rule does not mean the overdraft landscape will return to pre-COVID, pre-Biden, pre-Chopra world, insisted J.V. Proesel. president of Moebs $ervices.
J.V. Proesel
“High overdraft fees and penalty pricing is 20th century banking. The transaction account is digital and dominated by mobile payments and swipes. The consumers’ need for short-term cash to cover mistakes and emergencies is not going away,” Proesel said. “Overdrafts are defined by value and convenience. The value is driven by lower prices and meaningful overdraft limits. The convenience is provided by community banks and credit unions who recognize and offer a better overdraft value for the consumer.”
The CFPB’s overdraft rule, asserted Proesel, would have forced many financial institutions to eliminate their overdraft services.
“Which ultimately would harm the consumer who needs access to short-term cash from time to time,” Proesel said. “The CPFB’s $5 arbitrary overdraft price did not make sense for 99% of the financial institutions in the U.S. Let market forces dictate service prices and usage, not overreaching bureaucrats.
Proesel added that classical economic principles reveal that consumers seek the best value largely determined by price.
“And lower prices in return drive volume,” he said. “It is a win-win outcome for the overdraft service providers and users. While the price cap rule didn’t pass, the world of lower overdraft prices is here to stay. Those financial institutions who recognize overdraft value is driven by lower prices and meaningful limits will succeed.”