The CFPB — an agency that is considered the brainchild of Democratic Massachusetts Sen. Elizabeth Warren — finalized the rule just weeks before President-elect Donald Trump takes office, with the aim of forcing banks to either cap overdraft fees at $5, far less than the $35 average, or to provide the overdraft as a form of credit rather than a penalty. While the policy’s stated aim is to increase transparency and protect American depositors, experts told the DCNF it will force banks to implement more stringent rules on bank accounts, limiting access to credit and financial services for low-income Americans, and pushing more borrowers to turn to payday lenders, who typically charge far higher interest rates. (RELATED: Tech Giants Secure Work Visas For Tens Of Thousands Of Foreigners While Kicking Existing Employees To The Curb)
— U.S. Senate Banking Committee GOP (@BankingGOP) December 12, 2024
Incoming House Financial Services Committee Chairman French Hill of Arkansas echoed Scott’s sentiment in a Dec. 23 statement: “We told federal agencies — including the CFPB — to put their ‘pens down’ and stop all midnight rulemaking. Director Chopra blatantly disregarded our request by finalizing this rule. Capping overdraft services is another form of government price controls that hurts consumers who deserve financial protections and greater choice.”
CFPB claims it has the legal authority to implement the regulation on the grounds overdrafts are loans and not penalties — an argument Erik Jaffe, partner at law firm Schaerr | Jaffe LLP, described to the DCNF as a “stretch.”
“We no longer defer to an agency when they say ‘if you squint really hard this statute means I can do whatever the heck I want,’” Jaffe told the DCNF. “This CFPB rule seems to smell a bit like that. The agency appears to be saying ‘if we squint just right, overdrafts look like loans, and so we have the authority to regulate them.’ The courts will take it upon themselves to determine if this is the most natural reading, and will likely conclude it is not.”
Peter Earle, senior economist at the American Institute for Economic Research, told the DCNF the rule was the latest in a long line of “regulatory overreach” from the Biden administration.
“This is a classic case of government overreach with regulators having no idea how private business works,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF. “These new regulations would eliminate certain services and impose stricter rules on bank accounts predominantly held by low-income folks. If those people need an extension of credit because they don’t have sufficient funds to meet an immediate expense, they’ll be driven to even more costly payday lenders.”
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While typical credit card annual percentage rates range from 15% to 30%, and personal loans are even lower, payday lenders often charge annual interest rates of anywhere from 300% to 500%, according to Mayo Employees Federal Credit Union. In 2022, 17% of households with checking accounts reported that they or someone in their family paid an overdraft fee, with households with incomes under $30,000 twice as likely to report at least one overdraft as those with incomes of $100,000 or more.
The lame duck Biden administration’s Consumer Financial Protection Bureau (CFPB) issued a rule in December to curb overdraft penalties in what experts told the Daily Caller News Foundation is an example of government overreach that will ravage low-income Americans.
“The CFPB was given authority to regulate certain circumstances of consumer lending. As a result, the question is whether or not an overdraft on your checking account constitutes a short-term loan,” Jaffe told the DCNF. “It seems like quite the stretch. Banks charge customers a fee on overdrafts. The fee is not interest, as the length of time you take to pay back the fee does not change how much you owe. Interest must have a time component to it. It’s not like banks are giving customers with overdrafts money over time. They are just doing a courtesy of not bouncing a charge and embarrassing the customer.”
