205 million consumers will be harmed if House agrees to undo CFPB’s overdraft rule
By Charlene Crowell
While news headlines continue to focus on the chaos, confusion and legal challenges caused by the new administration’s recent changes, it could be easy to miss recent congressional actions that will cost consumers more than $5 billion annually in unnecessary and excessive bank overdraft fees
On March 27, a 52-48 Senate roll call vote the Consumer Financial Protection Bureau (CFPB) overdraft rule was overturned. It would have lowered the typical cost of an overdraft fee at very large banks (with at least $10 billion in assets) from around $35 to $5. The measure now moves to the House of Representatives, where it is expected to soon pass, and then reach the president’s desk for final action.
South Carolina Senator Tim Scott, who chairs the chamber’s Committee on Banking, Housing and Urban Affairs, sponsored a Congressional Review Act resolution that only required a simple majority to pass. Should the House concur with a second majority vote, large lenders could charge fees much higher than the actual cost of an overdraft to the financial institution. Following the Senate vote, Scott claimed a consumer victory – despite a wealth of research that documents massive and negative financial impact to consumers paying excessive overdraft fees.
“This overdraft conversation is a critically important conversation if you are like me, a guy who grew up in poverty, a single parent household, who understands the difficulty, the challenge, of single moms making those ends meet,” said Scott. “I want every single hardworking American to have access to our financial system.”
But access on what terms?
It is curious that Sen. Scott’s comments do not acknowledge how overdraft fees already disproportionately impact Black and Latino consumers.
“Black and Latino consumers are already four to five times more likely to be unbanked than white Americans,” wrote the Center for Responsible Lending (CRL) in a comment letter supporting the overdraft rule. “They are also disproportionately likely to be ejected from the financial mainstream. Ejection from the mainstream financial system can have long-lasting and negative systemic effects.”
CRL urged senators to vote for the interests of consumers, not the profits of large banks.
“This legislation, which should be called the ‘High Bank Fees Forever Act,’ would block the type of price cut that Americans have been clamoring for,” said Nadine Chabrier, senior policy counsel at CRL. “The measure would deny hundreds of dollars of relief each year from reaching families living paycheck-to-paycheck while letting huge financial institutions perpetually price gouge these families.”
CFPB’s overdraft rule required bank fees to correspond with their actual costs and losses – instead of generating a revenue stream designed to boost bank profits. Also, by requiring bank account-opening disclosures, consumers would assured choices to compare offerings, and decide whether to pay overdraft fees automatically or manually.
A near 300-member coalition of national and state advocates in civil rights, labor, religion, higher education, and other areas are working to raise awareness about the need to continue CFPB’s consumer protections.
“The CFPB is an agency of the people. From the protection from junk fees, to fighting excessive overdraft fees, providing assistance to impacted victims of natural disasters, and holding predatory practices accountable, the NAACP stands firm in bringing back the CFPB,” said Keisha D. Bross, NAACP Director of Opportunity, Race, and Justice. “The NAACP will fight to hold financial entities responsible for the years of inequitable practices from big banks and lenders.”
“It is shameful that Republicans are effectively writing bonus checks to executives at the nation’s largest banks while ordinary people struggle with high prices and increased costs of living,” added Lauren Saunders, the National Consumer Law Center’s associate director.
“Banking charters were never supposed to be a license to rip people off, but unfortunately, many banks rely on gotcha penalty fees to pad their profits, effectively diminishing the difference between insured depositories and payday lenders,” noted Adam Rust, director of financial services for the Consumer Federation of America. “Reversing this rule is a gift to banks, and if the House goes forward with their version, it will harm people for decades to come.”
As the measure advances to the House for further deliberation, California Congresswoman Maxine Waters, the Ranking Member of the House Financial Services Committee, posed an apt question to her colleagues:
“Whether you like the CFPB or not, it doesn’t make any sense to hike bank fees on 23 million hard-working families,” said the longtime lawmaker, “Why do you want to force them to pay $5 billion in more fees every year?
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.
