Senate Votes to Remove $5 Cap on Bank Overdraft Fees

The Senate voted 52 to 48 on Thursday to strike down a federal rule that would have capped most overdraft fees at $5. The regulation, introduced by the Consumer Financial Protection Bureau last December, was set to take effect later this year and was projected to save American households $5 billion annually. That savings is now off the table, and the political consequences may just be beginning.

The repeal passed largely along party lines, with Missouri Senator Josh Hawley standing as the lone Republican dissenter. “Why would we help the big banks at the expense of working people?” he asked after the vote. With the Senate’s approval, the resolution now moves to the Republican-led House, where Representative French Hill has already introduced a similar measure.

At the center of this debate are the overdraft fees, a charge banks impose when customers spend more than what’s in their account. For years, these fees hovered around $35 per transaction. The CFPB’s rule aimed to reduce that to just $5, arguing that the old system disproportionately penalized low-income Americans who were often caught off guard.

Republicans Defend the Rollback, Critics Sound the Alarm

Republicans backing the measure say removing the cap prevents overregulation. Senator Tim Scott, who introduced the resolution, argued that the CFPB’s rule amounted to price controls and would force banks to limit or eliminate overdraft protection entirely. “This rule is not good for consumers,” Scott claimed on the Senate floor. He insisted it would drive people toward riskier, unregulated financial services.

The American Bankers Association, which sued to block the CFPB’s rule in December, applauded the Senate vote. Rob Nichols, CEO of the association, warned that without flexibility on fees, many banks might simply drop overdraft coverage. He said this would leave consumers worse off in emergencies.

But critics are not buying it. Consumer advocates, Democrats, and former CFPB officials say the rollback benefits banks, not consumers. Senator Elizabeth Warren called the vote disgraceful. She accused Republicans of padding bank profits at the expense of working families. “These fees kick people when they’re down,” she posted on X.

The political angle is also hard to ignore. While Donald Trump previously supported limits on credit card interest rates, his administration backed the repeal of the overdraft fees cap. That position aligns him with big banks even as inflation and high prices continue to squeeze voters.

Will This Backfire With the Working Class?

This move could carry political risk. The average overdraft fee in the U.S. is $35, which is not a small hit for someone already struggling to make rent or cover bills. With polling consistently showing that Americans favor more transparency and fairness from financial institutions, removing a cost-saving rule may not sit well with voters.

Defenders of the cap, like Chuck Bell of Consumer Reports, say repealing the limit will hit the most financially vulnerable Americans the hardest. “Families are already dealing with inflation,” he said. “Now they’ll face even higher bank fees.”

Republicans argue that people should not be spending more than they have in the first place, and that overdraft coverage is a voluntary service. But that argument may not hold in the court of public opinion. To many, it looks like a win for banks and a loss for everyone else.

As the measure heads to the House, Democrats are betting that public pressure could slow or stop its progress. If it passes there too, the rollback will become law. Whether it is legal or not, the political message may already be loud and clear.

Do you support allowing banks to charge more than $5 for overdraft fees? Tell us what you think!

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