First, Do No Harm: Congress May Undo Biden Overdraft Regulations

Good intentions do not trump bad outcomes. This is a lesson that federal regulators often neglect.

Former President Biden sought to crack down on a host of fees in the banking and lending industries to save Americans’ money. Still, his policies would have hurt low-income Americans.

The latest example is a regulation finalized in the midnight hour of the Biden Administration to cap bank overdraft fees. In theory, this sounds like a good measure, but in practice, it would backfire on those who can least afford it by restricting their access to a credit backstop they depend on. 

Congress may undo this regulation before its effects can be felt by hardworking Americans. Today, the Senate passed a resolution to undo this regulation. All eyes are on the House and President Trump to close the loop.

Background

Biden-induced inflation has eaten up household budgets and made it more difficult for low- and middle-income Americans to make ends meet.

Overdraft protection has been a lifeline for individuals for many years by covering pending transactions even if there are inadequate funds in a person’s bank account. Going into overdraft (a negative balance) is not ideal, but it allows individuals to meet an immediate need and repay the borrowed credit over time. Overdraft fees motivate customers to clear the overdraft quickly.

Consumers value and depend on overdraft protection. In a Consumer Bankers Association survey, customers report that overdraft services are critical for everyday purchases. The leading categories that drove consumers into overdraft included food (30 percent), utilities (25 percent), and transportation costs (18 percent). These are not recreational expenses but basic needs.

Many of these expenses carry penalties greater than overdraft fees, such as losing power, not eating or taking medicine, and not driving to work or children to school. 

People who overdraft do not tend to have access to credit alternatives to cover expenses, such as savings or credit cards. Some 67% of frequent overdrafters (four or more times in the past year) say they had been denied a credit card in the past compared to only 34% of those who did not overdraft in the past year.

This is a system that works. However, the Biden Administration spent the better part of 2003 and 2024 going after fees in the banking and lending industry to appear to be attacking the affordability crisis induced by his reckless spending policies. Since Biden could not bring down inflation or price levels for everyday goods, he scapegoated financial industries.

How the Overdraft Rule Would Hurt Americans

The new “Overdraft Lending: Very Large Financial Institutions” rule by the Consumer Financial Protection Bureau (CFPB) was finalized at the end of 2024. It reduces what banks can charge for overdrafts of their checking accounts. Effectively, this cap overdraft fees down to $5 per transaction from today’s $35 average. Someone has to eat that cost difference.

Overdraft fees pay for the protection that consumers enjoy. If the federal government successfully limits overdraft fees, the losers will be the most vulnerable Americans. A 2021 report by the New York Federal Reserve found that ”the benefits of a fee limit come at the cost of more unbanked, low-income households.” Low-income households lose access to the credit they need, an outcome that no one can defend.

The need for credit does not disappear even if access to credit options drie up. Consumers with subpar credit are forced to turn to more costly alternatives, such as payday loans, pawn shops, and other forms of high-interest credit. Even some short-term loan products are under scrutiny and attack at the state and federal levels.

What’s Happening

The good news is that with conservatives in charge, they can undo Biden regulations that were finalized in the waning days of the previous administration using a tool called the Congressional Review Act.

Senator Tim Scott, Chairman of the Banking Committee, introduced the CRA to overturn this rule. He noted

The average American, because of Bidenflation, lost a thousand plus dollars in spending power.

Devastated by the Biden economy, President Biden looks for something to change the conversation.

And he changes it to something called “junk fees.”

One of the junk fees he talked about was the overdraft fee.

So, when you start capping this fee structure, you start eliminating overdraft. You start eliminating the possibility of people working paycheck to paycheck to make the decision to continue to use their resources in the most effective way.

Today, March 27th,  the Senate approved a rescission of the CFPB’s overdraft lending rule using the CRA by a 52-48 margin. Now, the CRA heads to the House of Representatives for consideration.

American housheolds, especially low-income homes, have been financially oppressed by four years of Biden’s high prices. Capping overdraft fees is not the financial relief that some think it would be. By restricting access to another form of credit, consumers lose financial help when they’re most financially vulnerable.

As Senator Scott added,

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.

I want every single hardworking American to have access to our financial system.

We agree.