What the House's Vote to Repeal CFPB Bank Overdraft Fees Cap Means For You

The House voted 217-211 in favor of overturning the Consumer Financial Protection Bureau's (CFPB) cap on overdraft fees banks can charge. With the approval, the measure goes to president Donald Trump to sign.

The rule, put in place by the Biden administration in December, capped what they called "junk fees" banks could impose on customers, including overdraft charges. The rule was slated to start on October 1 later this year.

Banking Committee Chairman Tim Scott (R-SC), who introduced the measure to repeal this rule, said on the Senate floor, per Politico, "President Biden’s politically motivated 'junk fee' conversation was not about helping consumers."

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Here's how this vote impacts you.

How the bank overdraft fees rule would have worked

The rule would have applied to banks carrying at least $10 billion in assets. Financial institutions in that category would be required to cap overdraft fees at $5 per transaction.

By comparison, the average overdraft fee is around $35, according to the Federal Deposit Insurance Corporation. The CFPB had said the new rule could help customers save up to $5 billion annually.

The CFPB's new rule also would allow two other workarounds for banks on how they handled overdraft fees: They could voluntarily set a fee that only covered the losses or package overdraft fees into a loan under the Truth in Lending Act. (The Truth in Lending Act outlines all the fees associated with a short-term loan to cover overdrafts, so you have an idea of the total cost of borrowing before agreeing to it.)

Where does the measure go from here?

With the House Senate approval, the measure moves over to the White House, where Trump will sign off on the measure.

ABA President and CEO Rob Nichols told the ABA Banking Journal, "We applaud the passage of the Congressional Review Act resolution nullifying the CFPB’s unlawful overdraft rule." He added, "Without access to overdraft protection, many Americans would be driven to less regulated and higher risk nonbank lenders to cover unexpected or emergency expenses."

This vote takes place as the Trump administration targets the CFPB. Shutting down the CFPB, which has gone after banks, mortgage lenders, credit card companies and more for their treatment of customers, would require Congress' support.

How to avoid bank overdraft fees moving forward

Many banks and credit unions rely on overdraft fees as another revenue stream. The Consumer Financial Protection Bureau reports the bigger banks get $8 billion in overdraft fees each year. Even still, many also offer products to help you avoid them.

Say you overdraft your account, but you have protection where your bank will transfer the money from your savings account to cover. While they're happy to do it, they'll assess a minimal fee for doing so. Still, you'll save much more money going this route instead of allowing overdraft fees to snowball.

Another option is to use budgeting apps to help you see a clearer picture of your finances. One of the best and most affordable options is Quicken's Simplifi, which breaks down your expenses to help see where your money is going. It can also anticipate future cash flows, allowing you to see where to curtail spending before running out of money.

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The bottom line

The House and Senate voted to repeal the new CFPB rule limiting bank overdraft fees. The measure moves to the White House, where Trump will sign off on the measure.

Once repealed, banks will continue to be free to impose overdraft penalties aligning with their fee schedules. For this reason, consult with your bank about any overdraft fee protection you might need.

And be sure to monitor your balances and use a budgeting app if it helps to keep in tune with your finances.

Related content

• New Junk Fees Rule Caps Credit Card Late Fees
• Trump Wants to Shut Down the CFPB: How Would it Impact You?
• The Best Budgeting Apps to Consider