While at first blush capping overdraft fees seems like a good idea, the unintended consequences could actually hurt the very consumers rule is intended to help.
In December of 2024, in the 11th hour before a new administration would take office, the Consumer Financial Protection Bureau — which the Trump administration is currently trying to shutter — passed a “final rule,” which would apply only to “Very Large Financial Institutions,” i.e.; those with total assets over $10 billion, that would cap overdraft fees to “actual costs and losses.”
In the last week of March 2025, the United States Senate voted 52-48 to pass Senate Joint Resolution 18 disapproving the CFPB rule.
According to James Erwin, with Americans for Tax Reform, the United States House of Representatives will likely be taking up the resolution sometime in April.
“The way it works is the Congressional Review Act empowers Congress to pass resolutions that abolish regulations that have been adopted by agencies,” Erwin said. “Once that regulation is overturned, it also salts the earth so that a “substantially similar regulation cannot be passed in the future.” So basically, you can’t, you know, retitle it, revise your grammar and then put out the same … [rule]. It’s a very important oversight tool.”
The president can, of course, veto the resolution which means it is generally only used when an administration has both houses of Congress as well.
“So basically, there’s a period at the end of the year which regulators really shouldn’t be promulgating age regulations because they could be overturned,” Erwin said, adding that the Biden CFPB decided to pass several regulations at the last minute anyway.
“I don’t know why they did that, because the result is they’re just all going to be overturned and the earth is going to be salted, so no future Democrat-run CFPB would be able to do anything like this in the future.”
Erwin said the issue with capping overdraft fees is that they are effectively a very short-term loan to a consumer.
“If the bank is kind enough to give you money you don’t have in your account because you need it in an emergency, they have every right to charge you something on top of that to discourage this behavior from happening,” Erwin said. “It’s a surcharge for the incredibly short term line of credit they’re extending to you that, presumably, you will pay back with basically the fee acting as interest. It discourages people from doing this all the time. If people were allowed to do this all the time, and there was no surcharge for it, the bank would run out of money.”
Erwin said if overdraft fees are capped — or eliminated entirely — the banks aren’t going to run out of money, they’re simply going to stop offering the service.
“What would happen is the bank would stop offering overdraft fees,” Erwin said. “So they basically say ‘sorry, we’re stopping offering overdrafts at all.'”
He said if the bank is not allowed to charge a fee to indemnify itself against the loss of the overdraft — and to impute some kind of moral hazard on the people who are chronically overdrawn —- the banks just won’t allow anyone to overdraw their account
“That would mean people would not be able to get these sort of emergency funds when they’re in a tight spot to make rent,” Erwin said. “I mean, frankly, this you could see an increase in homelessness as a result, if people are not able to overdraw their accounts to pay the rent if they’re in a tough situation, if they lost their job, or they need to scramble to make ends meet at any point. Having the option of an overdraft when you’re in dire straits is helpful but, you know, there’s a fee for that, and rightfully so.
“The other thing that will happen is they’ll just get people to turn to payday lenders, which will charge even worse interest rates, and possibly push them to the black market credit.”
In an article at the ATR website, Erwin wrote that overturning this rule upholds the free market.
“By dismissing the CFPB’s proposed rules on overdraft lending, lawmakers can uphold the idea that financial decisions should be driven by market dynamics instead of government mandates,” Erwin wrote. “This strategy encourages responsible lending, allowing financial institutions to serve their customers better. A thriving financial environment fosters competition, leading to improved products and services for everyone.”
